According to a report released by the Federal Reserve on Wednesday (October 15), the tariff policy implemented by US President Trump is pushing up inflation levels across the board, and companies are currently facing a dilemma of whether to absorb the costs or pass them on to consumers.



The Fed's regular Beige Book report, released eight times a year, typically about six weeks apart, categorized overall economic growth as "little changed" since the previous report on Sept. 3. It also said the labor market was "largely stable" as demand "weakened" in most of the Fed's 12 districts.

Weakened economic growth momentum and weak consumer demand, combined with high inflation, create the risk of stagflation, which will pose significant challenges to the Federal Reserve's policymaking.

If interest rate hikes are slowed to maintain growth, the dollar's interest rate advantage will be weakened, exerting downward pressure on the dollar . The weak demand picture depicted in the report offsets some of the benefits brought by inflation, making the outlook for the dollar more uncertain.

However, in terms of prices, the tariffs implemented by Trump since April and gradually increased in subsequent months have already had an impact. The report said: "Prices have increased further during this reporting period. Many jurisdictions reported tariff-induced increases in input costs, but the extent to which these higher costs have been passed through to final prices has varied."

In some cases, companies are holding prices steady to remain competitive and appease inflation-sensitive customers. But some companies said they are "passing on the higher import costs entirely to customers." A few jurisdictions reported that slowing demand has actually pushed down material prices.

Trade tensions have intensified in recent days, fueled by Trump's threat to impose 100% tariffs. The report comes as economic data is scarce as the government shutdown enters its third week. Key departments, such as the Labor and Commerce departments, remain largely closed due to the ongoing impasse. However, Bureau of Labor Statistics staff have been recalled to publish the Consumer Price Index, a key inflation indicator. While CPI data is typically released on Wednesdays, it will be released on October 24th, marking the last inflation data the Federal Reserve will receive before its October 28-29 policy meeting.

The government shutdown and delayed release of key economic data have made it difficult for markets and the Federal Reserve to accurately assess the state of the economy .

This uncertainty will lead to cautious market trading and undermine the credibility and effectiveness of the Federal Reserve's policy decisions, which will usually have a certain negative impact on the country's currency.

The Beige Book reported that consumer spending declined slightly in recent weeks, but noted that high-income individuals saw "strong" spending on luxury goods and travel. Meanwhile, middle- and low-income earners sought discounts and promotions. Some districts showed improved expectations for the future, though Philadelphia reported caution about a prolonged government shutdown.

This suggests that weak demand has begun to constrain companies' pricing power. If companies are unable to pass on costs to consumers, their profit margins will be squeezed, which could curb future investment and hiring, thereby dragging down long-term economic growth and posing a potential negative impact on the US dollar .

At 8:53 Beijing time, the US dollar index is currently at 98.50.