The Federal Reserve is closely watching the upcoming August Consumer Price Index (CPI) report, set to be released at 8:30 a.m. ET on Friday. This report will provide the last major inflation update before the Fed's next interest rate decision on September 16. Economists anticipate that the CPI will show a 3.3% annual increase in prices, a slight decline from the 4.2% peak seen in May. The report will help Fed officials determine whether this slowdown is a sign of a broader trend or if inflation is becoming more persistent due to rising fuel prices linked to the ongoing conflict in the Middle East. The Federal Reserve's main strategy for controlling inflation is raising interest rates, which makes borrowing more expensive and can help slow spending. At its most recent meeting, nearly half of Fed policymakers expressed support for a rate increase later this year. If the Fed decides to raise rates next week, it would be the first increase since July 2023, when inflation had reached its highest level in over four decades. "The swing voters on the Fed are closely watching this data," said Heather Long, a chief economist at Navy Federal Credit Union. "That's what makes this report so important." Other economic indicators also suggest that inflation remains a concern. The Labor Department reported that the producer price index, which measures inflation before it reaches consumers, rose 5.4% in August, up from 4.8% in July. Meanwhile, U.S. oil prices climbed above $100 a barrel due to renewed fighting in the Middle East, and President Trump has escalated a trade war with Canada, which could further increase costs. Fed Governor Christopher Waller has said he would consider a rate hike if inflation remains high, but he would support keeping rates steady if the CPI shows progress toward the Fed’s 2% inflation target. Markets are increasingly expecting the Fed to raise rates at its September meeting. According to CME FedWatch, there is a 70% chance the Fed will increase its benchmark rate to between 3.75% and 4% by September 16. This expectation is driven by ongoing price pressures from the Middle East conflict and other factors such as tariffs, rising health insurance costs, and increased spending on artificial intelligence. "The CPI report is unlikely to change the message of limited progress on inflation and should support a rate hike in September," said Stephen Juneau, a U.S. economist at Bank of America Securities.