U.S. inflation likely rose in August as tariffs push up goods prices, complicating Fed decision

U.S. consumer inflation likely ticked higher in August as the Trump administration’s broad import tariffs lifted the price of goods, potentially complicating a Federal Reserve decision expected next week.

Economists surveyed by data provider FactSet forecast that the consumer price index rose 2.9% from a year earlier in August, up from a 2.7% annual pace in July. Core inflation, which excludes volatile food and energy costs, was expected to hold at 3.1% year over year, remaining well above the Fed’s 2% target. On a monthly basis, overall and core prices were both projected to rise 0.3% from July to August. Retail food and gasoline prices were among categories seen as contributing to the monthly gains.

Those readings, while modest, underscore the policy dilemma confronting the Fed: inflation running above target argues against cutting interest rates, while weaker hiring and a recent uptick in unemployment point toward looser policy. Recent government reports have shown hiring slowed sharply in recent months and payrolls for the prior year were revised down, signs that businesses may be less inclined to add staff amid uncertainty. The unemployment rate rose to 4.3% in August, still near historically low levels.

Federal Reserve officials have been under intense pressure from President Donald Trump to lower short-term interest rates to stimulate borrowing, spending and economic growth. Last month, Fed Chair Jerome Powell signaled that officials were increasingly focused on the labor market and indicated that rate cuts were likely when they meet next week. Powell also cautioned that tariffs could produce primarily a one-time increase in consumer prices rather than sustained inflation, a distinction that would affect the pace and scale of any future easing.

Markets have priced in multiple rate cuts this year. Futures tracked by CME FedWatch reflected investor expectations for about three reductions in the Fed’s policy rate over the coming months, though such expectations can shift quickly as incoming data alter the balance between inflation and employment.

The August inflation data arrives against a backdrop of heightened political tension over Fed independence. President Trump sought to remove Fed Governor Lisa Cook this month in an effort critics said would assert greater White House control over the central bank. A court late Tuesday ruled the attempted firing illegal and permitted Cook to retain her seat while the dispute proceeds through the judicial system, a decision that leaves the Fed’s composition unchanged as policymakers prepare to meet.

Policymakers will weigh whether recent tariff-driven price increases represent transitory passthroughs to consumer prices or signal more persistent inflationary pressure. If the tariffs primarily caused a one-time jump in import-related costs, the Fed could be more comfortable easing policy. If price gains broaden and persist, officials may delay or scale back reductions in the policy rate to prevent inflation from becoming more entrenched.

Analysts noted that the projected August uptick, if confirmed by the official Labor Department release, would keep inflation this summer above the Fed’s stated objective even as labor-market indicators moderate. The outcome of next week’s Fed meeting will depend on how officials interpret those crosscurrents and on further incoming data on prices, wages and hiring.

The Labor Department is scheduled to release the official consumer price index report for August this week. The Fed’s next policy meeting is set for next week, when officials will announce any decision on the federal funds rate and provide updated guidance on the outlook for monetary policy.