U.S. inflation accelerated in August at a speed that is likely to keep the Federal Reserve cautious about lowering borrowing costs too quickly once it restarts cuts as soon as next week.
The Consumer Price Index, released on Thursday by the Bureau of Labor Statistics, rose 2.9 percent compared with the same time last year, the fastest annual pace since the start of 2025.
“Core” inflation, which the central bank tracks as a gauge of underlying inflation since it strips out volatile items like energy and food prices, steadied at 3.1 percent.
The overall measure of inflation rose 0.4 percent for the month, slightly higher than economists had expected. The core measure rose 0.3 percent.
The inflation data has been pivotal to the Fed’s debate about not only when it should lower interest rates again after a long pause but also the speed at which the central bank moves once that process kicks off.
Officials have opted to proceed cautiously so far this year given concerns about the effect that President Trump’s tariffs will have on consumer prices. They have opted to keep interest rates steady all year at a range of 4.25 percent to 4.5 percent, after a series of reductions in the final months of 2024. That approach has angered Mr. Trump, who wants borrowing costs substantially lower.
The issue for the Fed is that Mr. Trump’s levies have pushed up costs across a wide range of goods, upending earlier progress on getting inflation down. Declines in other categories like energy have helped to limit the overall increase, however, helping to placate earlier fears that the resulting inflation surge would be much more intense.
Policymakers are keeping close tabs on prices across the services sector, which accelerated sharply in July. For officials to feel more confident that tariffs are only set to result in a temporary burst in inflation rather than something more pernicious, those price pressures need to stay contained.
But the prospects of resurgent inflation is not the only risk the Fed must consider. Monthly job growth slowed sharply this summer, partly as a result of companies holding back from hiring. A steep drop in the supply of available workers stemming from Mr. Trump’s immigration restrictions has had a meaningful impact, too. Layoffs remain low, however, and the unemployment rate has stayed relatively stable, at 4.3 percent as of August.
That has resulted in what Jerome H. Powell, the Fed chair, described late last month as a “curious kind of balance” for the labor market, which made it more susceptible to a downturn.
“This unusual situation suggests that downside risks to employment are rising,” he said during a closely-watched speech in August. Mr. Powell used that speech to send his strongest signal yet that the central bank would soon begin lowering borrowing costs. “And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”
The Fed will convene next week for its two-day meeting, with its decision on interest rates announced on Wednesday. It is broadly expected to lower interest rates by a quarter of a percentage point to a new range of 4 percent to 4.25 percent. After September’s meeting, officials will gather twice more to vote on interest rates. These policy decisions are made by all seven members of the Fed’s board of governors as well as a rotating group of presidents from the 12 regional reserve banks.
Lisa Cook, the Fed governor who Mr. Trump is trying to oust over allegations she committed mortgage fraud, is poised to be in attendance after a federal judge this week ruled that she could continue serving in her role as she contests the legality of her recent dismissal. The Trump administration on Wednesday appealed the decision, but it is not yet clear when the U.S. Court of Appeals for the District of Columbia will hear the case.
In another twist, the Fed may have a new member by the time of its next vote, with Mr. Trump’s pick to replace Adriana Kugler, who resigned last month, getting fast-tracked through the Senate. Stephen Miran, who most recently served as Mr. Trump’s top economic adviser, could be voted in as early as Monday despite concerns about his willingness to uphold the longstanding political independence of the central bank. He is expected to support a much more substantial reduction in interest rates than a majority of sitting officials, although two other Trump-appointed members of the board of governors have split from that group as well in support of earlier cuts.
Christopher J. Waller and Michelle W. Bowman in July dissented against the Fed’s decision to hold interest rates steady and have since urged their colleagues to support lower borrowing costs.
The latest data also comes at a tumultuous time for the agency responsible for releasing it.
The Department of Labor’s inspector general’s office said on Wednesday that it was “initiating a review of the challenges that the Bureau of Labor Statistics encounters collecting and reporting closely watched economic data.”
The BLS in June said it was reducing its collection of data on consumer prices, and had stopped gathering data entirely in several areas.
The review comes weeks after President Trump fired the head of the statistics agency, Erika McEntarfer, following an unexpectedly weak monthly jobs report. He has since nominated E.J. Antoni, a conservative economist, to replace her. Mr. Antoni has not been confirmed by the Senate.
Ben Casselman contributed reporting.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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