The Federal Reserve saw an economy that was moderately growing in April but also dealing with the higher prices brought on by import tariffs and the war between the U.S. and Iran.
It was the latter that left firms cautious on hiring and investment, with the Fed’s “beige book” survey of its 12 regional districts showing that “business outlooks varied amid widespread uncertainty about future conditions.”
But overall, “the conflict in the Middle East was cited as a major source of uncertainty that complicated decision-making around hiring, pricing, and capital investment, with many firms adopting a wait-and-see posture.”
The release of the survey comes as President Donald Trump is once again threatening to fire Fed Chairman Jerome Powell, whose term leading the central bank ends in mid-May. However, Powell has said he will not step aside – his term as governor continues beyond this year – as long as a new chairman is not sworn in and a Justice Department probe into spending on renovations at the Fed’s headquarters continues.
Powell has said that without a new chairman, he would continue to serve as a temporary chairman but has refused to say whether he plans to stay on at the Fed as a governor until that term ends.
It is also unclear what Trump aims to gain from threatening Powell again, as his push for lower interest rates seems stalled with only one Fed official, Trump appointee Stephen Miran, firmly in the camp for lowering rates.
Last year, Trump tried to get rid of Lisa Cook, a Fed governor who has been accused of mortgage fraud, but courts have blocked him. The case is now at the Supreme Court, where justices seemed unconvinced at oral arguments over the Trump administration’s position.
Markets appeared to shrug off the latest words from Trump on the Fed, choosing instead to take heart from comments that he made suggesting the war could be over soon. There are reports that the two sides are seeking to get back to the negotiating table.
“The geopolitical situation continues to be complicated as Tehran and Washington position for control over the Strait of Hormuz amidst traffic volume through the key waterway that is well below normal,” Jose Torres, senior economist at Interactive Brokers, wrote in a commentary on Wednesday. “Meanwhile, Iran has threatened to retaliate in response to the U.S. naval blockade of the passage. Still, President Trump has attempted to quell anxieties by saying that both sides could begin negotiations again this week and that the conflict will likely culminate soon.”
In the meantime, inflation remains well above the Fed’s 2% annual target – running anywhere from around 3% to 4% depending on whether one measures consumer prices or the wholesale costs that businesses face. And that has most analysts in agreement that the Fed will remain on pause for much of 2026. It’s also unlikely that the price of oil and gasoline will return quickly to their pre-war levels until a clearer picture of the situation in the Middle East emerges.
Two Trump policies – sweeping import tariffs and the war against Iran – are contributing to inflation, with diesel prices up more than 50% in the past month. Gasoline prices, meanwhile, have surged from $3 to over $4 a gallon.
But economists also say that the broader picture of inflation is more favorable.
“Energy is driving the upside, and with geopolitical tension around key oil routes, those price moves can happen quickly and filter through the system,” Gina Bolvin, president of Bolvin Wealth Management Group, wrote on Tuesday.
“Underneath that, core inflation is relatively steady, which suggests the broader economy isn’t overheating,” Bolvin added. “That split is what makes this moment tricky.”
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