The Fed is keeping a close eye on inflation numbers out later this week

We’re a week out from the September meeting, when the Federal Reserve will decide whether to cut interest rates to stimulate the economy. But before that decision, we get one more round of official readings on inflation this week.

On Wednesday, we get the PPI, which shows wholesale costs that retailers pay. On Thursday, we get CPI, the price that consumers pay for things. Could either of those last-minute data drops change the Fed’s decision?

At this point, the market has pretty much priced in a modest rate cut next week. Because, when you look around right now, “a lot of signs are pointing to an economy that is slowing,” said Celeste Carruthers, a professor of economics at the University of Tennessee.

One of those slowdown signs is hanging over the job market, she said.

“The U.S. has been adding fewer jobs. The unemployment rate is historically very low still, but it has been ticking up over a number of years,” said Carruthers.

A rate cut could help reverse those trends. But remember: “The Federal Reserve has a dual mandate,” said Stephen Cicchetti, a finance professor at Brandeis University.

That mandate is to manage not just the job market, but also inflation — which, thanks in part to tariffs, remains hotter than the Fed’s target of 2%.

“It's no mystery to anyone who does food shopping, for instance, food prices have gone up. It's not a mystery to people who have to pay home energy, electricity prices have gone up,” Cicchetti said.

Even though a rate cut could push those prices even higher, Cicchetti said the central bank’s concerns about the job market are beginning to outweigh its worries about inflation.

The consumer price index rose at an annual rate of 2.7% in July. It would take a huge jump in the August data for the Fed to hold rates steady, per V.V. Chari, an economist at the University of Minnesota.

“If they saw something like 3.5%, 4% inflation in the CPI and the PPI, that might raise alarm bells,” he said.

But Chari said that’s unlikely and agrees that the economy is probably in line for a rate cut. That doesn’t make it an easy decision for the Fed, though.

Patrick Harker is former president of the Federal Reserve Bank of Philadelphia, now at The Wharton School. He sees some echoes of the past.

“It's not the 1970s, but it does feel like stagflation-y. I'll use a technical phrase,” he said.

I couldn’t find “stagflation-y” in the econ textbooks. But Harker said that, like in the 1970s, there are two problems here: “The trends are clearly for a softening economy and for inflation to remain sticky.”

That means using interest rates to address one of those problems could make the other worse.