Related Links

• Getting a Grip on U.S. Tariff Changes
• Regional Surveys of Business Activity: Special Questions
• Why Businesses Say Tariffs Have a Delayed Effect on Inflation
• What Businesses Are Saying

Transcript

Tim Sablik: My guest today is Renee Haltom, regional executive and vice president of sensing, engagement, and publications at the Richmond Fed. Renee, welcome back to the show.

Renee Haltom: Thanks, Tim. Always great to be here.

Sablik: As regular listeners will remember from your past appearances on the show, one of your big jobs is talking with businesses and community leaders around our district to gather intel about the regional economy. This information helps our Bank president, Tom Barkin, when he weighs in on monetary policy decisions.

Something we've been talking about on the show and in our other publications a lot recently is how this economic sensing is particularly valuable in periods of heightened uncertainty. What's your perspective on that?

Haltom: Data will probably always be most important, but it lags. It's a result of many other changes. So, when something big happens, time is valuable. If we can get insight earlier, well then that's great. Moreover, our conversations with firms can tell us why firms made the decisions they did. We think of our relationships with businesses as a really important complement to the data and to the models we use, and sometimes one that provides more real-time information.

For several years, we've worked really hard to establish a large and trusted network of business leaders that we check in with regularly to supplement the data with real-time intelligence. The geography I personally cover is the businesses in Virginia, while my counterpart, Andy Bauer, covers Maryland, West Virginia and D.C., and Matt Martin covers the Carolinas.

Their outreach is substantial. In 2025, our team had nearly 4,000 touchpoints with contacts across the Fifth District. That included more than 400 sit-down conversations with more than 300 unique firms, as well as dozens of roundtable discussions that brought in the public and the nonprofit sector, too. That's an incredibly rich source of real-time data when it really mattered.

Sablik: One of the big questions on the minds of businesses and economists over the past year has been, "How are changes in tariff policy affecting the economy?" How did you and your team go about trying to find answers?

Haltom: Some of these conversations were regular updates that we have with businesses to keep a general pulse on the economy. We're constantly talking with a new set of firms as well as reaching back to people that we've known for a long time.

In the last year, many of these conversations were specifically set up to better understand the implications of big changes in the industries most impacted by tariffs. For example, we have three prominent ports in our district in Baltimore, Norfolk, and Charleston. We also doubled our outreach to firms in the manufacturing and retail sectors.

We thought geographically, too. One of my colleagues in the Richmond Fed Research department is economist Marina Azzimonti — who, I believe, has been on the podcast — who has calculated tariff impacts by county. We called these "tariff hot spots." They were counties in our district where the potential impact of tariffs was greater, based on the sectors operating there and the import exposure of those sectors to tariffs.

Starting in May of last year, we amplified outreach to some of those locations. A couple of examples included Smyth County, Va., where the transportation equipment sector is prominent, as well as Chester, S.C., where the chemical sector has a concentration. The thinking was that if tariffs began to cause layoffs at any point — say, because firms costs were squeezed — those communities might be hardest hit.

Thankfully, we haven't had much of that employment impact at all. But it did allow us to build relationships in these tariff hot spot regions that we can keep up with as tariff impacts roll out.

We even leveraged our surveys, which help us hear from an even larger number of firms. We got more than 5,000 survey responses last year alone, and some of those surveys included special tariff-related questions to supplement our outreach.

So overall, we were able to blend our research, our surveys, and our relationships with businesses to draw unique insights on how tariffs were impacting the economy in real time.

Sablik: What were some of the most pressing questions that you had during the initial rollout of tariffs?

Haltom: After several years of elevated inflation in the post-COVID period, we wanted to quickly understand if the new tariffs would lead to a one-time price increase or enduring pressure on inflation.

Tariff passthrough has turned out to be a quite drawn-out process for many firms, thanks to a slew of strategies that they employ. These include a few different things that firms have mentioned to us. They might be front-running orders ahead of tariffs, depleting pre-tariff inventory, or spreading out cost passthrough over time to make it less noticeable on customers.

We published an article in August of last year that outlined some of the reasons firms gave us that tariffs have a delayed impact on pricing decisions. The key takeaway was that businesses were hesitant to pass along tariffs and potentially upset their customers until they were sure tariffs were going to be relatively permanent.

Outreach helped us better interpret the data once it did come. We heard from firms that the tariff impact was unlikely to show up immediately in prices. But that didn't mean it wasn't coming.

Interestingly, this process is still going on one year later. I still hear of firms looking for openings to squeeze through a bit more price. They're having to be strategic, though, because consumers have made it clear that they're not willing to accept further inflation.

Another key question around tariffs was whether tariffs produce an enduringly higher inflation rate over time. On that one, I think the jury is still out. But based on what we're hearing from firms, consumers are pushing back hard on inflation and that is limiting the inflationary impact.

Sablik: As you said, this pricing process has been ongoing, but some of this tariff passthrough has been happening. How are consumers responding to price increases from tariffs or other forces in the economy?

Haltom: Naturally, most firms told us they wanted to pass along all of the cost increases. But most firms just did not feel that they could, or at least not very easily.

What was really interesting is that we saw very different impacts based on whether a firm served businesses or consumers. For firms that are business to business, or what we call "B2B," they found it much easier to pass long tariff costs to their customers. And they still do, even to this day.

Very early in the supply chain, it feels more common to hear firms say they're passing on 100 percent of a tariff. Often, they do that through clauses that are written explicitly into their contracts.

By contrast, business-to-consumer firms, or what we call "B2C," quickly experience a consumer or household that had had enough of the inflation over the last few years, frankly. They found that consumers were often sensitive to inflation. Consumers were either trading down to cheaper alternatives, trading out where they detected price increases, or even trading off between spending categories.

It turned out that B2C firms had to be strategic — with timing, as we covered before, but also with products. They ended up spreading tariff costs over tariff and non-tariffed goods, or sometimes they targeted more inelastic products, or tacked more price increases onto luxury goods to take advantage of higher income consumers having more resilient spending.

Consumer sensitivity is now causing some firms to change strategy. We've talked to a number of large, consumer-facing firms who, for a while, saw prices up and volume negative. Now they're starting to pivot toward worrying about volume. They're changing strategy toward price discounts and promotions as one way of getting there.

So, it's fair to say, at this point, firms are watching demand extremely closely to assess how much and where they can pass through increases. Even in cases where firms could pass along tariffs at first, many are now moving from broad increases to more surgical price increases designed to have the least impact on demand.

Because of customer resistance, firms looked to other cost-cutting options. Some negotiated with suppliers — that's where we saw major differences across large and small firms, where smaller firms often didn't have the scale or leverage to push back against suppliers. Some firms slowed hiring and lots of firms restructured their businesses in different ways to find efficiencies. Firms always have that option, but when margins are under pressure, that's an added incentive to do so.

Sablik: You mentioned hiring. Have these shifts in costs or consumer demand from tariffs prompted firms to make any changes to their workforce?

Haltom: It's a good question. I'm going to say yes, but not in the way that you might be thinking.

We knew that tariffs had the potential to impact both sides of our dual mandate — not just price stability through inflation and costs, as we've been talking about, but also maximum employment, which is the other side of our mandate. For example, if firms faced higher costs but were unable to raise prices in step, they could have turned to cutting labor.

Fortunately, this really isn't what happened. Firms have very widely said that they were reducing headcount via attrition, but very few even mentioned layoffs as an option, and that remains true even to today. It turns out firms are just not eager these days to lay off workers, thankfully. This has eased concerns about a coming spike in the unemployment rate, though I always have to note that, historically, that's something that can change quickly.

Sablik: That's a good point. I'll let listeners know we're recording this on March 23, just in case things do change between now and when this comes out.

Haltom: That's right, speaking of real-time data.

Speaking of low hiring, firms have given a couple of reasons for that. One is simply increased uncertainty in general over the last year. Firms just don't want to invest in headcount if there's any chance of not needing it. Instead, firms say that, for a time, they're just doing more with less as they assess the future.

That relates to the second reason firms mention for lower hiring, which is productivity. Firms have seen a lot of efficiency gains over the last year that turned out to be incredibly well timed to help firms navigate tighter margins and tariffs.

These productivity gains came from a few places. Some of it was simply firms having had to do more with less during the post-COVID labor shortages. Many of them invested in different technologies or processes to figure out how to do more with less.

Some [of it] was that in an environment over the last year of heightened costs and uncertainty, firms had a pretty good excuse to try to fight hard to find efficiencies. We've heard some examples of firms putting in, say, a 3 percent productivity assumption for the year and just figuring it out from there.

Finally, AI has come up often as an area of exploration, but firms are primarily crediting process streamlining and non-AI automation for measurable improvement. But many of them are very much looking forward to AI improvements going forward.

So, I'd say all of those efficiency enhancements aren't necessarily as a result of tariffs. But they came at a time where it helped firms cope better with tariffs.

Sablik: What would you say is your big takeaway from what you've learned talking with businesses now a year on, or almost a year on, from the big tariff announcement in April 2025?

Haltom: Tim, there have been so many really rich conversations. I think it's going to take us a little while to continue to sort out all the things that we've heard. We'll continue putting that information out and sharing it with the public as we can.

But really, I'd say that I take away just the value of talking to businesses to understand the economy. A year ago, we got a bulk of new tariff announcements, but the tariff developments continue to today and talking to businesses continues to help us understand how these impacts are unfolding.

For example, the Supreme Court overturned a key form of tariffs in February, and so we're talking with firms about what that means. Most firms tell us that they still feel tariffs will be with us in one form or another. So, it may not have changed as much as it might seem on the surface.

And that's just tariffs. There is, of course, uncertainty around AI and, at the present moment, geopolitics with the conflict in Iran. So, from our standpoint, our sensing feels more important than ever.

I think I have to end on a note of sincere gratitude to our many contacts, and hopefully many of them are listening here today. That includes our businesses that allow us to call them from time to time, our survey participants, our Beige Book calls. All of these firms really give incredible, helpful information for understanding what's happening in real time. They're really contributing to the Fed's public service mission when they do it. So, I'm grateful to have the chance to thank them here today.

Sablik: And if there are any businesses out there listening in our district who aren't yet participating in our surveys or sensing, can they do that?

Haltom: Absolutely. If you reach out to any of us, send me an email directly, go to our website. We'd love to have new businesses as part of our contact list, so please do reach out.