Fed Flags Faster Inflation on Tariffs, Energy, AI Spending

The Federal Reserve's latest Beige Book shows inflation picking up across the U.S. economy as tariffs, higher energy costs, and a wave of AI-related capital spending feed into price pressures.

Several of the central bank's 12 districts reported that businesses plan to pass along rising input costs tied to new tariffs. Energy prices, especially for crude oil and refined products, were flagged as a broad cost driver for manufacturers and transport firms. Heavy spending on data centers and AI infrastructure is also tightening labor markets for construction and engineering roles, pushing wages higher in those sectors.

The Beige Book, compiled from anecdotal reports collected through mid-March, described the overall economic picture as little changed. The tone on inflation was sharper than in the January edition, which had called price increases modest.

Trade policy uncertainty is stalling some business investment. Manufacturing and retail contacts told the Fed they were delaying big orders until the tariff picture clears.

The report arrives ahead of the Fed's next meeting, where officials are widely expected to hold rates flat. Markets have priced a first rate cut for the second half of the year. The Beige Book's inflation signals could push that timeline further out if the data follows the same path.

Fed Chair Jerome Powell said earlier this month the central bank is in no rush to cut rates, citing sticky inflation and the need for more progress on price stability.