New inflation data set to be released on Thursday is anticipated to show a rise in consumer prices. Economists predict that inflation for the year ending in August will reach 2.9%, a slight increase from the 2.7% rate recorded in July. This report comes just days before the Federal Reserve is expected to announce a quarter-point interest rate cut.

A higher-than-expected inflation reading could lead Fed policymakers to reconsider their plans to lower rates. Conversely, a lower figure might encourage the central bank to consider a more significant half-point cut. If the inflation data aligns with expectations, it would remain below the 3% rate noted in January, the month President Donald Trump took office.

Recent months have seen tariffs contributing modestly to overall inflation, but analysts indicate that the primary drivers of price increases are rising housing and food costs, which are largely unrelated to tariffs. The upcoming data arrives at a precarious time for the U.S. economy, as inflation has been rising while hiring has slowed, raising concerns about a potential economic scenario known as "stagflation."

A jobs report released last week revealed a significant drop in hiring for August, extending a trend of weak labor market performance. Additionally, a revision of previous hiring estimates showed that the U.S. economy added far fewer jobs in 2024 and early 2025 than initially thought, intensifying worries about the job market's health.

These economic conditions have created a challenging situation for Federal Reserve policymakers. If the Fed opts to raise interest rates to combat tariff-related inflation, it risks pushing the economy into a downturn. On the other hand, lowering rates to stimulate the economy amid a hiring slowdown could exacerbate inflation.

As a response to the sluggish labor market, the Fed is expected to cut interest rates during its meeting next week. Investors currently estimate a 90% chance of a quarter-point rate cut this month, with nearly a 10% likelihood of a half-point cut, according to market sentiment indicators.

The inflation data will be the first released by the Bureau of Labor Statistics since the dismissal of its Commissioner, Erika McEntarfer, last month. President Trump claimed, without evidence, that McEntarfer manipulated statistics for political purposes. McEntarfer, who was appointed by President Biden and had served in the federal government for two decades, expressed her gratitude for the opportunity to serve in a social media post following her dismissal.

William Beach, a former BLS commissioner appointed by Trump, criticized McEntarfer's firing, stating, "The totally groundless firing of Dr. Erika McEntarfer... sets a dangerous precedent and undermines the statistical mission of the Bureau." McEntarfer has not publicly commented on the matter since her dismissal.