Fed's Beige Book finds widespread concerns about new and proposed trade tariffs

BloombergSeveral ports along the East Coast said there were worried about the impact of a trade dispute with China.

The Fed's verdict: The Beige Book reported activity remained at "a modest to moderate pace" in March and early April, the same rate as earlier in the year. There were widespread concerns about trade policy. Overall wage growth was said to be modest, and price gains seen as moderate. Wage pressures "did not escalate," the report said. Labor markets were seen as tight, with continued reports of labor shortages for high-skilled workers.

What happened: Contacts in nine of the dozen Fed regional banks expressed concerns about trade tariffs - with 36 mentions of the word in the report. Business owners were upset with the price rises for metals in the wake of the Trump administration's decision to place penalties on steel and aluminum imports. And there were worries about the prospect of future tariffs on Chinese imports from various sectors such as toys, agriculture, and transportation. There were relatively few comments about the tax cuts signed into law by President Trump.

Big picture: With steady above-trend growth, tight labor markets and moderate inflation pressures expected, the Fed's game plan is to gradually raise short-term interest rates and bring its balance sheet back down to size. Nothing in the report calls for a reassessment. Wage pressure didn't accelerate and there were only "scattered" reports of companies successfully passing through price increases to customers.

Economists see first-quarter gross domestic product running near a 1.6% annual rate, well below the 2.7% rate the central bank expects this year. There were few signs from the report that economic growth was set to break out on the upside. It seems like the uncertainty from trade might be a drag on future activity.

What are they saying:? "These [aluminum] tariffs are now killing high-paying American manufacturing jobs and businesses," said one contact in the Boston Fed's district, upset that the price of "thin gauge foil" had been raised three-fold.

Market reaction: U.S. stocks DJIA, -0.34% moved a bit higher after the report but still struggled to maintain gains Wednesday, after an earnings-driven rally that has taken it back into positive territory for the year.