U.S. President Donald Trump, with Vice President JD Vance and Speaker of the House Mike Johnson, R-La., looking on, delivers his State of the Union address during a Joint Session of Congress at the U.S. Capitol on Feb. 24, 2026, in Washington, D.C. (Photo by Andrew Harnik/Getty Images)
President Donald Trump’s undeclared war with Iran and his sweeping tariffs are increasing costs and dampening the economic outlook, some business and community leaders have told the Federal Reserve Bank of Cleveland.
The war will enter its third month on Friday without a clear rationale or goal. A fragile cease-fire is in place, but Iran continues to restrict access to the Strait of Hormuz — a chokepoint for global energy, fertilizer and mineral flows.
Gas prices in Ohio have surged by more than one-third since Trump launched the war, and some fertilizers have spiked as much as 50% nationally as planting season is underway. Meanwhile, as of January, Trump’s tariffs are estimated to have increased consumer costs by 1.5%, according to the Yale Budget Lab.
Those factors — combined with uncertainty over what will happen next — have created problems in multiple sectors of the economy, according to the Cleveland Fed’s latest Beige Book.
The Cleveland Fed represents the Federal Reserve System’s Fourth District — a region that covers all of Ohio and parts of Pennsylvania, Kentucky and West Virginia. Eight times a year, it conducts interviews and online questionnaires with businesses, community organizations, economists, and other sources.
The latest Beige Book said that businesses were feeling the pinch from higher prices.
“Overall, non-labor input cost pressures were robust for the seventh consecutive reporting period, intensifying further and continuing an upward trend that started in September 2024,” it said.
“Contacts across sectors highlighted escalating energy costs related to the conflict in the Middle East, with some describing fuel costs as ‘skyrocketing’ and others noting that this would further exacerbate already-high freight costs. Materials costs continued to rise, particularly for metals like copper, steel, and aluminum, with manufacturers citing tariffs as drivers. Two agricultural contacts reported fertilizer cost spikes, and one attributed this to the Strait of Hormuz closure.”
The report said that due in part to frenzied construction of data centers, manufacturing is expected to grow “modestly.”
But it said manufacturers outside of that field and defense may have a tough outlook.
“While two producers with defense contracts reported stronger activity related to the conflict in the Middle East, many manufacturers worried that a prolonged conflict would increase input costs and soften demand,” it said.
“A few producers continued to report flat or softer demand as customers strategically reduced existing inventories.”
And many producers worried about consumers’ ability to buy their products.
“Consumer spending declined modestly in recent weeks, driven by extreme weather events and high fuel prices,” the Beige Book said.
“Grocery store and automotive contacts noted that higher fuel prices strained customers’ wallets, and one higher-end grocer reported customers making fewer trips and purchases. Contacts expected flat consumer spending in the coming months, with many noting that the evolving conflict in the Middle East and associated increase in fuel costs could hurt their demand.”
People in the bottom half of the income distribution are feeling most of the pain. The Beige Book reported on a semiannual survey of nonprofit community organizations.
It said “most respondents reported a decline in their clients’ financial well-being over the past six months due to elevated prices. One respondent said more people sought foreclosure prevention services amid rising property taxes and insurance, while a homeless shelter operator observed longer stays due to the lack of affordable housing.”
The groups also reported a deteriorating jobs outlook for their clients.
“Some respondents who assist jobseekers noticed fewer entry-level positions available,” the report said. “By contrast, others noted more openings for low-paying jobs — manual labor, part-time or temporary jobs, and gig work — that typically lack health-care benefits or a reliable income.”
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