US business optimism wanes over tariffs, rate hikes: Fed

6th December, 2018 10:21:33 printer

WASHINGTON: US business optimism has fallen in recent weeks amid uncertainty over tariff disputes, rising interest rates and continued labor shortages, the Federal Reserve said Wednesday.

The Fed's "beige book" survey of the economy showed the impact of President Donald Trump's punitive import tariffs has become more widespread, with cost increases felt by manufacturers, retailers and restaurants, restraining demand, reports AFP.

Even so, most regions of the US showed modest or moderate growth, and there were continued reports of companies increasing wages and benefits to attract and retain qualified workers, the report said.

"Most districts reported that firms remained positive; however, optimism has waned in some (districts) as contacts cited increased uncertainty from impacts of tariffs, rising interest rates, and labor market constraints," the Fed noted.

Trump has imposed steep tariffs on steel, aluminum and about $250 billion in imported goods from China, which has retaliated with tariffs on US goods. Washington and Beijing have agreed to negotiate a deal to resolve the dispute, but that could take another three months.

Wage increases -- added to rising costs in more industries due to US tariffs on steel and aluminum and hundreds of billions of dollars in imports from China -- could become a concern for the central bank as it works to head off inflation without slowing economic growth.

But the outlook reflected in the report has not changed much in recent months, and provides few signs that the expected increase in the Fed's benchmark lending rate in December might be postponed.

The report was prepared for the Fed's monetary policy meeting on December 18-19, which is expected to end with the fourth rate increase this year and the ninth in three years.

"Higher metals prices because of import tariffs continue to be a pain point for manufacturers and construction firms," the Cleveland Fed bank said.

"There were a number of reports of tariffs leading to higher prices further down the supply chain," including to retailers.