MW U.S. businesses hit the brakes on hiring and spending as Iraq war dims optimism over economy, Fed report finds

By Greg Robb

Many Fed districts also report growing signs of financial strain among consumers, along with increased price sensitivity and rising demand at food banks

The Federal Reserve reports that more Americans are visiting food banks.

U.S. businesses are pulling back from making major decisions due to uncertainty stemming from the war with Iran, according to the Federal Reserve's latest report on regional economies, known as the "beige book."

"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 report said.

The Fed also found that economic activity had deteriorated, describing it as "modest." The previous report, which covered the month of February, described economic activity as "moderate."

Regarding business expectations, the nascent optimism found by the previous report was downgraded to "varied amid widespread uncertainty."

The latest survey, which covers conditions through the first week of April, was carried out to help Fed officials gain an understanding of local conditions ahead of their meeting at the end of the month to set interest rates.

Sal Guatieri, senior economist at BMO Capital Markets, said there was a "stagflation-like tone" to the report, referring to a scenario of rising inflation along with slowing growth.

"The conflict is making businesses more cautious. If this uncertainty persists, delayed investment and hiring will translate into a larger drag on growth," said Marco Casiraghi, senior economist at Evercore ISI.

Heather Long, chief economist at Navy Federal Credit Union, said the big question is how quickly the cautious optimism that prevailed earlier in the year could return after a permanent cease-fire between the U.S. and Iran.

According to the report, consumer spending increased slightly on balance across the country, driven by high-income Americans.

Many Fed districts reported growing signs of financial strain among consumers, along with increased price sensitivity and rising demand at food banks and other social-service organizations.

A retailer in New York reported a shift from cash to credit-card payments, suggesting consumers were more inclined to borrow to support spending.

Inflation pressures were evident as energy and fuel costs rose sharply in all districts as a result of the Iran war, while input-cost pressures beyond energy were also widespread.

Prices were up for metals and for hardware and software products. Insurance premiums and healthcare costs continued to climb.

Input prices outpaced selling pressure, compressing margins. This points to upside risks to inflation in coming months, said Evercore's Casiraghi.

The Kansas City Fed district reported that several manufacturers added automatic surcharges tied to logistics and energy inputs.

Employment rose slightly over the reporting period. Most districts reported labor demand as stable, with low turnover, minimal layoffs and hiring mostly for replacements.

In New York, finance professionals and highly skilled tech workers, especially those with artificial-intelligence skills, were in high demand.

Wage pressures were muted overall except in healthcare and the skilled trades. There was an increased demand for temporary workers, as companies were cautious about committing to permanent hires.

Housing activity softened around the country as heightened uncertainty and rising mortgage rates put a damper on demand.

-Greg Robb

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April 15, 2026 17:49 ET (21:49 GMT)

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