Image source: Wikipedia

The Federal Reserve’s July Beige Book sang a tune similar to the one from the June Beige Book: higher inflation is just around the corner. These expectations, born from interviews with business contacts, once again underline the reluctance the Fed (as a whole) has to rush to cut rates and simply look through uncertain tariff-related impacts. According to the Beige Book, “contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer.” I cannot remember a time when inflation was above the Fed’s target, projected to rise, AND the Fed cut rates anyway.

Each Fed region told slightly different stories about their respective inflationary pressures. A few regions are even enjoying some type of price stability for now. Still, the anecdotal evidence on the whole supports the notion that tariffs cause prices to rise, and the price impacts can cascade in uncertain ways.

Boston
 

Boston produced benign inflation commentary. Prices may be stabilizing. According to the Boston observers: “Most contacts expected to hold their own prices steady for the rest of the year, as some perceived strong consumer resistance to further price increases. Tariffs were expected to drive seafood prices higher going forward, but risks of rising inflation were mentioned less frequently than in the previous report.”

New York
 

The commentary from New York was the exact opposite of Boston. Perhaps reflecting a higher rate of international commerce in the New York region, this region delivered some of the sharpest inflationary commentary: “the pace of input price increases remained steep as tariff-related cost increases were widespread. Many businesses reported continuing to pass on some or all tariff cost increases to their customers.” Tariffs drove up the costs of steel inputs and auto parts. While businesses indicated there are limits to their ability to pass on prices – “businesses expected substantial increases in input prices in the months ahead, but more moderate increases in selling prices” – one retailer reported a creative solution by raising prices on products with inelastic demand. This pricing strategy could gain popularity as tariffs push higher prices across the economy and businesses scramble to accommodate without crushing demand.

Philadelphia
 

This region reported some pricing pressures in the forms of discounts from the retail, tourism, and residential construction sectors. The pricing pressures facing builders have slowly increased this year. One firm even received price relief on insurance for the first time in a few years. While tariff-related pricing pressures have been lower than expected so far, businesses expect larger tariff impacts in coming months.

Cleveland
 

Perhaps because of heavy industries with a dependence on highly tariffed inputs, Cleveland seems to be getting hit hard by cost pressures: “contacts’ reports indicated that nonlabor input costs continued to rise at a robust pace in recent weeks and that the cost stabilization seen during 2024 had dissipated.” The strong pace of price increases in imported, tariff-impacted materials and tariff-impacted retailers leads contacts to generally expect “costs to grow at a strong pace in the coming months.” The banking, professional, and business services sectors have even experienced higher costs for technology, including AI and data security. (Cleveland was the only region to report such higher costs, but I doubt they are or will be the only one hit given the broad need for this technology). Firms in Cleveland are raising prices to respond to tariffs, but they are somewhat constrained by price sensitivity in their marketplaces.

Richmond
 

Richmond had little to say about prices. The most notable comment came from a firm that has suffered increased costs throughout its business: “One manufacturer said that input costs were higher in recent months due in part to tariffs but also from rising regulatory, insurance, and labor costs, including wages and benefits.”

Atlanta
 

In Atlanta, businesses are trying every trick in the book to manage tariff-related risks and price pressures: sharing costs between suppliers and customers, changing supply chains, drawing down on pre-tariff inventories, pre-emptive price hikes, and wait-and-see. I expect this broad palette of strategies to unfold nationwide.

Chicago
 

Business in Chicago expected the same pace of inflation going forward as the “moderate” rate they saw from late May to June. Higher material costs were the highlight for manufacturers surveyed in the region.

St. Louis
 

Businesses surveyed in St. Louis described a mix of absorbing the increased costs of tariffs and passing along higher costs to customers.

Minneapolis
 

Beating Boston, Minneapolis had the most benign commentary on inflation. Businesses in Minneapolis actually reported a slower pace of inflation than the previous month. This region quantified its survey as follows:

• About a quarter of District firms increased the prices they charged to customers in June from a month earlier.
• About the same percentage anticipated increasing their prices in the month ahead.
• Slightly less than half of respondents reported increased input prices over the previous month.

Kansas City
 

Profit margins shrank in Kansas City as businesses were not able to pass on the full extent of increased input costs. Companies may have absorbed all they can at this point given “some firms reported they are planning broad-based price increases across product lines to maintain profitability.”

Dallas
 

Despite a range of reports of higher costs for input materials, “expectations for 12-month price growth eased slightly in June compared to March.”

San Francisco
 

Inflationary pressures remained the same from the June to the July Beige Book. The pressures are also broad-based: “Price increases were reported across a wide range of industries.”

Inflation Will Stay Resilient
 

On balance, the Beige Book confirms that, at best, inflation going forward will hang around current levels. Gone is the glide path downward that reassured the Fed about cutting rates. The June CPI report suggests that inflation has bottomed out. A nudge from tariffs could put in place a new uptrend as higher price levels settle out through the country.
 

Source: U.S. Bureau of Economic Analysis, Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index) [PCEPILFE], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PCEPILFE; U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average [CPILFESL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CPILFESL, July 17, 2025.

The Fed is unlikely to hit its 2% inflation target anytime soon.

The Noise
 

While inflationary pressures build, pressures build on Chair Jerome Powell o resign or get fired. The drumbeat of acrimony now seems like a lot of noise. Like the tariff drama, trauma, and noise, the Powell versus Trump drama is mainly headline fodder until something happens. Wednesday’s (July 16) news was case in point. Headlines screamed Trump was ready to fire Powell, bonds fell, and then Trump refuted the rumor. The iShares 20+ Year Treasury Bond ETF (TLT) almost tested its low for the year before rebounding sharply.
 

The iShares 20+ Year Treasury Bond ETF (TLT) almost tested its low for the year.

I used the sharp dip to buy TLT $87 call options expiring in August—the trade bets on another relief rally following a sharp sell-off. I expect to return to fading rallies in due time.

Be careful out there!

More By This Author:

Tom Lee Dismisses Tariff Inflation — But Data, Theory, And Research Say Otherwise
Powell Vs. Waller: Divided Fed Faces Tariff-Driven Inflation Uncertainty
Jerome Powell: Meaningful Inflation Is Coming