The Federal Reserve’s latest Beige Book points to an economy that is holding up, but increasingly under strain from rising costs and geopolitical uncertainty. Activity expanded at a “slight to modest pace” across most districts, while others reported little change or mild contraction. The overall picture suggests resilience, but with momentum slowing as firms navigate a more uncertain environment.
A key theme was the impact of the Middle East conflict, which has become a major source of uncertainty for businesses. Companies cited difficulties in planning “hiring, pricing, and capital investment”, with many adopting a “wait-and-see posture”. This cautious approach reflects both the unpredictability of energy prices and the broader implications for demand and supply chains.
Cost pressures are clearly building. Energy and fuel prices rose sharply across all districts, feeding through into higher transportation costs and increased prices for petroleum-based products such as plastics and fertilizers. At the same time, broader input costs—from metals affected by tariffs to technology and insurance—continued to climb. Notably, many firms reported that “input cost increases outpaced selling price growth, compressing margins”.
Labor market conditions, however, remain relatively stable. Employment was “steady to up slightly”, with low turnover and limited layoffs, while wage growth continued at a “modest to moderate pace”. Some firms are also turning to AI-driven productivity gains to manage costs, allowing them to “delay or reduce hiring”.
