By Howard Schneider
WASHINGTON (Reuters) -Recent national and global surveys of business executives have highlighted the U.S. Federal Reserve’s dilemma in determining if slowing growth or inflation is the greater risk to the U.S. economy, with interest rate decisions hinging on how policymakers reconcile conflicting information in a still volatile trade environment.
With new economic data pulling the Fed in both directions, surveys of U.S. chief financial officers from the Fed and of global executives from Dun & Bradstreet show business leaders expect the tension to continue as they plan price increases while also anticipating weaker revenue and demand.
That outlook, and the uncertainty around it, could leave the Fed waiting longer than expected before cutting interest rates, a recipe for even more tension with President Donald Trump. Trump last week repeated his call for steep rate cuts and for Fed Chair Jerome Powell to resign, while Treasury Secretary Scott Bessent said the Fed’s rate posture was “a little off.”
The CFO survey, conducted by the Atlanta and Richmond Federal Reserve banks with Duke University, indicated executives plan to increase prices, even at companies not exposed to rising tariffs, a dynamic many Fed officials fear could mean more persistent inflation is on the way. Policymakers inclined to cut rates sooner argue that tariffs may cause a one-time price shock but not ongoing inflation.
“The concern you’d have in this environment is…the price pressures broaden beyond those that are just directly impacted” by tariffs, Atlanta Fed economist and assistant vice president Brent Meyer told Reuters. “We’re seeing some evidence of that, at least an expectation,” in CFO survey responses.
Atlanta Fed President Raphael Bostic said recently he worried it could take a year or more for firms to adjust to coming tariffs, with “a pretty significant risk that upward pressure on prices and inflation is going to be with us for some time.”
A Dun & Bradstreet survey of 10,000 businesses globally, meanwhile, showed a clear break in sentiment early this year when Trump’s tariff plans became clear, with firms scrambling to reorganize supply chains and become less dependent on U.S. markets or production. While that could embed higher cost into supply chains, Dun & Bradstreet Chief Global Economist Arun Singh said the survey overall told a story of slower expected growth.
The quarterly poll has tracked steady declines in overall optimism, worries about the durability of supply chains, and concern that central bank interest rate cuts had “not yet translated into tangible improvements in borrowing conditions for many businesses.”
Businesses “do not seem to be in a mood to think well, okay, we’ll get some tariffs and that will be that. We’ll all move on,” Singh said. “The overall economic concern is not going to be short-lived…There’s a delay in capital expenditure. They’re delaying payment to their vendors…They’re trying to de-lever.”
Powell at a press conference following the Fed’s June meeting said businesses had been “in a bit of shock” following Trump’s April 2 announcement of steep global tariffs, but sentiment now “feels much more positive and constructive than it did three months ago.”
Nevertheless, he said, firms still must decide how to cope with far higher-than-expected tariffs, with many rates still not finalized. After markets reacted poorly to Trump’s April 2 announcement, he postponed many tariffs until July 9 while his administration negotiated with other countries, then moved the deadline back to August 1 while beginning to roll out large, unilateral levies in the absence of finished deals.
Given the high level of uncertainty surrounding White House policy, Fed officials say they are paying particular attention to surveys, interviews with business leaders, and other “soft” data to provide a real-time sense of how decision makers are responding.
The broad sense among corporate officials that they will be raising prices, for example, is a key reason the Fed is reluctant to cut rates and risk adding to any coming inflation with looser credit that could encourage more household and business spending. Its rate has been in the 4.25%-to-4.50% range since December.
Investors expect cuts beginning in September.
But the Fed’s 19 policymakers were closely divided in their most recent projections, with 10 seeing several cuts this year and nine effectively pushing easier monetary policy into 2026.
Powell has said repeatedly, and over Trump’s calls for big rate cuts, that data and the outlook will determine if cuts are warranted, and so far the case has not been made.
The unemployment rate fell to 4.1% in June and firms added a healthy 147,000 new jobs. Consumer spending may be slowing, but recent inflation was higher than expected.
A recent JPMorgan Chase Institute study showed why the current moment is tough to assess.
Middle-market firms with between $10 million and $1 billion in revenue, accounting for about a third of U.S. employment, face a tariff bill exceeding $82 billion based on levies currently in place. They must determine whether that can be forced back on producers, passed on to consumers, or must be absorbed through lower profits or internal cost-cutting.
“They are large enough to be exposed to tariffs, large enough to be direct importers, but not large enough to have the power to manage margins,” as effectively as major national retailers, for example, said institute president Chris Wheat, adding it will take time to determine how much of the extra costs end up paid by producers, passed on to consumers, or absorbed through lower profits and internal cost-cutting.
CFOs in the Fed survey said they had in some cases doubled planned price increases for the coming year. Often those planned price hikes outstripped expected revenue growth, implying that firms also expect slower business, an outcome that could leave the Fed coping with stagflation.
“Our sense is that these tariffs for the U.S. economy will be a stag-flationary shock,” said Citi Chief Global Economist Nathan Sheets, pushing the economy “in the direction of having higher inflation, lower growth.”
(Editing by Dan Burns and Anna Driver)
