US firms face tariff-fuelled price hikes, labour shortages
US firms nationwide complain trade disputes with China and others are boosting the prices of key inputs, while they continue to face widespread labour shortages, the Federal Reserve said Wednesday.
The ongoing difficulty in filling open positions at all skill levels and in every region is delaying projects and pressuring firms to raise wages or benefits -- or even employ robots to ramp up production -- according to the Fed's latest "beige book" survey of the economy.
While the reports from the Fed's regional banks reflected a healthy US economy, with "modest to moderate growth," President Donald Trump's aggressive tariff strategy, which has drawn retaliation from trading partners, is potentially adding fuel to inflation.
The central bank is watching price pressures closely to gauge how fast and how far to raise the benchmark lending rate, to allow the economy to continue to grow without an acceleration of inflation.
The Fed has raised the key interest rate three times this year and is widely expected to increase by another 0.25 percentage points in December.
"Manufacturers reported raising prices of finished goods out of necessity as costs of raw materials such as metals rose, which they attributed to tariffs," the Fed report said.
Some companies are not able to pass on cost increases to customers, and in Philadelphia firms reported "difficulty meeting the prices of foreign competitors who are not exposed to tariffs on the primary input commodities of their products."
Trump has imposed steep tariffs on steel, aluminium and about $250 billion in imported goods from China, which has struck back with tariffs of its own on US goods.
Inflation has increased about two percent this year, in line with the Fed's target, but economists fear growing demand, combined with the tariffs and a labour shortage could ignite price increases.
But even as the tariffs and the December tax cut could be adding to inflation, Trump once again attacked Fed Chairman Jerome Powell for raising interest rates.
In an interview in The Wall Street Journal on Tuesday, Trump said ahead of next month's midterm congressional elections that the Fed posed the "biggest risk because I think interest rates are being raised too quickly."
And he said companies complaining about rising costs were just trying to shift the blame, and denied any tariffs were in place -- while simultaneously congratulating himself for their use to force countries to the negotiating table.
"A business that's doing badly always likes to blame Trump and the tariffs because it's a good excuse for some incompetent guy that's making $25 million a year," Trump said.