U.S. Economy Overview

By Ann Saphir

The U.S. economy ended 2024 with a slight to moderate increase in activity and a tick upward in employment, according to the Federal Reserve’s report on Wednesday. However, businesses raised concerns about potential policies under President-elect Donald Trump that could lead to higher prices.

The findings draw on observations from business and community contacts of each of the Fed’s 12 regional banks up to January 6, offering a snapshot of the economy as Trump prepares to return to the White House next week.

The Fed stated, “More contacts were optimistic about the outlook for 2025 than were pessimistic, though contacts in several Districts expressed concerns that changes in immigration and tariff policy could negatively affect the economy.” Contacts expected prices to rise further in 2025, with some suggesting that higher tariffs could contribute to this increase.

Concerns were noted in regions where Trump had significant support in the November 5 election, where he campaigned on heavy tariff increases and strict immigration restrictions. As per the Dallas Fed, “Outlooks continued to improve although there was concern regarding potentially adverse effects of future immigration and trade policies.”

In Kansas and Nebraska, food manufacturers expressed worries that restrictions on temporary migrant labor could create significant supply constraints. Meanwhile, leisure and hospitality businesses in Colorado indicated that immigration restrictions might worsen labor shortages in resort areas. The tech industry also raised concerns about hiring overseas workers if offshoring policies change.

Manufacturers in the Richmond Fed’s area were already anticipating tariffs will lead to higher inflation, with expectations for price growth over the next year increasing. The data for this survey was collected before the California wildfires began.

Fed policymakers reduced the policy rate by one full percentage point during the last four months of the previous year, currently ranging from 4.25% to 4.50%. Most expect only a small rate reduction this year due to slow progress towards the Fed’s 2% inflation goal and a strong labor market.

Consumer prices increased by 2.9% in the year ending December, the highest rise since July, up from November’s 2.7%. The unemployment rate for December was recorded at 4.1%, a decline from the previous month.

Moving forward, the uncertainty surrounding Trump’s proposed tariffs, tax cuts, and other policies has left Fed policymakers in a wait-and-see position, with financial markets expecting no policy rate reduction until at least June.