Inflation data set to be released on Friday will indicate whether prices continue to rise, raising concerns about the effects of President Donald Trump's tariffs and complicating efforts to improve a struggling labor market. This report is delayed by over a week due to the government shutdown, which has hindered the release of economic information.

Economists predict that prices increased by 3.1% in September, a slight rise from the 2.9% year-over-year increase recorded in August. If accurate, this would represent the highest inflation rate since May 2024. The upcoming inflation report arrives at a precarious time for the economy, as inflation has been rising while hiring has slowed, creating a risk of "stagflation," a situation characterized by stagnant economic growth and high inflation.

These economic conditions present a dilemma for the Federal Reserve. Raising interest rates to combat tariff-related inflation could push the economy into a downturn. Conversely, lowering rates to stimulate the economy amid a hiring slowdown could lead to increased spending and further inflation.

Last month, the Federal Reserve cut its benchmark interest rate by a quarter of a percentage point, marking its first rate cut of the year to help revive the labor market. Federal Reserve Chair Jerome Powell acknowledged the difficulty of the situation, stating, "It's a challenging situation when our goals are in tension like this," but noted that the balance of risks has shifted toward greater concern over sluggish hiring.

Market sentiment suggests that policymakers are likely to implement another quarter-point cut when they meet next week. However, a higher-than-expected inflation reading on Friday could cause Fed officials to reconsider, as a rate cut might lead to increased demand that could further drive up prices.

In recent months, tariffs have contributed modestly to rising inflation, according to analysts. However, the primary drivers of price increases have been housing and food costs, which are largely unrelated to Trump's tariffs. Last week, President Trump threatened to impose 100% tariffs on all goods imported from China starting November 1, in response to restrictions on rare earth minerals. Beijing has maintained its stance on the policy, resulting in a stalemate that could significantly impact the prices of consumer goods imported from China.