As Trump Stokes Uncertainty, the Fed Asks Businesses Where It Hurts

Chris Bergen, the owner of a commercial greenhouse business in northern Minnesota, finds himself navigating an uncertain economic landscape just two months into President Trump’s second term. The unpredictability surrounding the administration’s trade and immigration policies has made him hesitant about expanding his operations.

As one of the largest producers of bedding plants, perennials, and flowers in the country, Bergen’s Greenhouses faces multiple challenges. Every June, the company imports over six million pounds of peat moss from Manitoba. However, suppliers have halted price quotations until tariff implications become clearer. Additionally, the plastic flower pots Bergen sources from China could become significantly more expensive if tariffs persist, further straining already tight profit margins. Another pressing concern is the potential loss of temporary visas for agricultural workers, which could lead to serious labor shortages if the Trump administration intensifies its immigration crackdown.

“We’re not slamming on the brakes, but we’re definitely easing off the accelerator,” said Bergen, whose family has run the business for over a century.

This kind of cautious approach among business owners is a major concern for the Federal Reserve, which is grappling with a highly complex economic environment. The central bank is attempting to assess the broader economic impact as it debates the timing and necessity of further interest rate cuts. Inflation remains higher than desired, while businesses warn of increasing costs and slowing growth—effects that have not yet fully materialized in economic data.

The Federal Reserve’s 12 regional presidents have always maintained close communication with businesses in their districts to monitor economic conditions. However, these conversations have gained newfound importance as the range of potential economic outcomes has widened significantly.

“We always receive mixed signals from the economy, and these discussions help us distinguish meaningful trends from background noise,” said Neel Kashkari, president of the Minneapolis Fed.

During a recent visit to Detroit Lakes, Minnesota, Kashkari heard concerns from Bergen and other business owners about inflation, decelerating economic growth, and high interest rates. Over 1,600 miles away, Susan M. Collins, president of the Boston Fed, encountered similar apprehensions in Manchester, New Hampshire.

Melissa Florio, president of Ambix Manufacturing, a plastics company, expressed worry about rising costs and declining customer orders due to tariff uncertainties. One of her suppliers recently informed her that the price of a crucial mineral used in flame-retardant production, sourced from China, would increase by 354%.

Florio fears an impending recession. “Every day feels like a rollercoaster,” she admitted.

The Fed is striving to determine whether Trump’s policies will reignite inflation, a challenge the central bank had nearly overcome last year. Another concern is whether consumer demand will contract significantly, leading to slower economic growth. If both occur simultaneously, the Fed will face the difficult task of balancing price stability with employment concerns.

Having paused interest rate cuts after a series of reductions last year, the Fed now faces a dilemma. Lowering rates prematurely could cause inflation to persist, while delaying too long might inflict unnecessary economic damage.

“I completely understand why people crave more clarity, especially given the broader uncertainties,” said Collins. “It would be wonderful if monetary policy followed a straightforward roadmap, but unfortunately, that’s not how it works.”

‘Hard’ vs. ‘Soft’ Economic Data

Since the pandemic, predictions of an economic downturn have repeatedly proven incorrect. The U.S. economy has consistently defied forecasts of an inevitable recession, even at the peak of the 2022 inflation crisis when the Fed aggressively raised interest rates.

Now, concerns have resurfaced due to the unpredictable implementation of Trump’s trade policies.

From the perspective of “hard” economic data—quantitative indicators such as GDP growth and employment—the economy remains robust. While consumer spending has started to cool and savings rates have increased, unemployment remains low at 4.1%, and layoffs have not risen significantly.

However, “soft” data—survey-based measures reflecting consumer confidence and sentiment—suggests widespread economic anxiety. Many Americans anticipate slower growth, rising unemployment, and higher prices. While sentiment-based surveys are often unreliable predictors of real economic activity, the magnitude of the shift in public perception has raised red flags.

“If there’s a significant swing in sentiment, whether positive or negative, it’s worth paying attention to,” Kashkari noted.

At a recent “Fed Listens” event, Kashkari polled an audience of over 200 people on their economic outlook. Approximately 40% held a pessimistic view, with nearly 20% expressing a neutral stance. More than 70% expected prices to increase in 2025, at least to some extent.

Business Retrenchment Amid Uncertainty

Signs of business retrenchment are already evident. Many companies have postponed investment plans and put hiring on hold as they await clearer signals from the administration.

Dynamic Homes, a modular home construction company in Detroit Lakes, relies on Canadian lumber, making it vulnerable to Trump’s tariff threats. Since the pandemic, the company’s construction costs have risen by roughly 30%, and insurance premiums have surged alongside interest rates. Additionally, about 20% of the company’s $25 million revenue stems from federal contracts, which have faced cuts under new government efficiency measures. CEO Paul Okeson admitted the company is hesitant to move forward with a $1 million factory upgrade and is reconsidering purchasing new $200,000 semitrailers for home transportation.

“It’s a substantial investment in an uncertain environment,” Okeson said. “The market is already fragile, and even small disruptions can have significant consequences.”

Other businesses face similar dilemmas. Casey Mittag, general manager at Foltz Trucking, which operates 120 trucks transporting grains and consumer goods across the Midwest and Canada, is reconsidering major equipment purchases. Instead of buying new vehicles, he is exploring options to extend warranties on existing trucks.

Even Velcro, which has new projects in development, is evaluating the feasibility of relocating some Mexican-based operations back to the U.S. in response to potential tariff increases.

For Florio at Ambix Manufacturing, the stakes are simply too high to make substantial financial commitments in such an unpredictable economic climate.

“You don’t want to make a rash decision and end up regretting it,” she said. “It’s better to endure some short-term discomfort than take a risk that could lead to layoffs or financial instability. Right now, everything is just too chaotic.”

Stagflationary Risks

The Fed’s response to the current uncertainty would likely be different if inflationary pressures were not still present.

During Trump’s first term, the Fed cut interest rates in response to his trade war, as inflation remained subdued. This flexibility allowed for continued economic expansion. If the new tariffs do not trigger lasting price increases, the Fed may follow a similar playbook.

Fed Chair Jerome Powell has indicated that officials still expect to cut rates by half a percentage point this year, despite revising inflation projections upward and lowering growth forecasts.

However, the wide range of views among policymakers underscores the deep uncertainty surrounding these projections. Kashkari, for instance, has penciled in two rate cuts this year, believing that economic growth concerns will outweigh any temporary inflation spikes caused by tariffs. Still, he acknowledged the risks of persistent inflation.

“If inflation stalls at its current level, we may need to hold rates steady for longer than expected,” he said.

Collins, who has a vote on monetary policy this year, shares this cautious stance. She anticipates slower economic growth and a more gradual decline in inflation, which could delay rate cuts beyond initial expectations. However, she does not believe the economy is headed for a full-blown stagflation scenario—where inflation remains high while growth stagnates.

Others are less certain. A recent survey of 115 economists and financial experts indicated that Trump’s policies could result in a “stagflationary supply shock,” reducing growth by 0.6 percentage points and raising unemployment to 4.6% over the next year. Inflation, measured by the Personal Consumption Expenditures price index, could rise by 0.5 percentage points during that period.

Ultimately, the Fed’s ability to respond will depend on how inflation expectations evolve. For now, Powell has downplayed recent shifts in inflation forecasts, but some economists remain concerned about long-term price stability.

“They have to take these signals seriously,” said former Cleveland Fed President Loretta Mester. “Even if they try to downplay the risks publicly, internally, they must be paying close attention.”