Many economists and investors expect the Federal Reserve to raise interest rates by a quarter of a percentage point at its Sept. 16-17 policy meeting. But this coming week's inflation data may prove cool enough to keep officials on the sidelines-and the federal-funds rate in a target range of 3.50% to 3.75%.

Friday's employment report lowered the bar for an interest-rate hike, putting even greater focus on the latest inflation readings as measured by the producer price index, or PPI, to be released on Sept. 10, and the consumer price index, or CPI, out on Sept. 11. The Bureau of Labor Statistics reported on Friday morning that the U.S. economy added 162,000 jobs in August, far above expectations, with the labor-force participation rate edging up to 61.6%.

"A labor market adding workers at this pace, with layoffs contained and participation recovering, gives the committee no reason to unfix its focus from the price stability side of its mandate," wrote Jason Pride, chief of investment strategy and research at Glenmede.

Inflation data for June and July showed price growth weakening, following a spike in May driven by higher gasoline prices tied to the Iran war. If August delivers another month of cooler inflation readings, the Federal Open Market Committee may vote to hold the fed-funds rate steady.

At least three Fed officials-governor Christopher Waller, governor Michael Barr, and New York Fed President John Williams-signaled this past week that the August inflation data will be a deciding factor in their policy decisions. Their tone contrasted with Fed Chairman Kevin Warsh's hawkish speech on Aug. 28 at the Fed's annual Jackson Hole, Wyo., symposium.

"My decision on the appropriate stance of policy will be heavily influenced by what we learn about August inflation," Waller said on Thursday. "If there is continued progress towards our 2% goal, then I'm willing to hold-willing to support holding the policy rate at its current level. But if inflation comes in hot, I would consider a rate hike."

Economists surveyed by FactSet expect the PPI report to show that wholesale prices rose 0.4% in August, compared with no change in prices in July. The estimated increase could boost producer price inflation to 5.4% year to year, up from July's 4.7% annual gain.

A jump in inflation probably owed to higher energy costs, particularly a surge in diesel costs. The Institute for Supply Management reported this month that manufacturers' prices paid held steady in August, while services firms reported price growth. Absent food and energy costs, so-called core PPI probably rose 0.3% in August, versus 0.2% in July.

Stronger wholesale inflation isn't expected to bleed into consumer prices-at least not yet. CPI is expected to have climbed 0.4% in August, up from July's 0.1% growth rate, according to FactSet. But inflation is likely to have dipped to 3.3% on an annual basis from July's 3.4% annual pace.

Core CPI could show even less growth, rising 0.2% in August, on par with July's increase. Economists expect core CPI to advance 2.3% on an annual basis, marking the lowest rate in more than five years-and cooler than July's 2.5% pace of growth.

The Fed's favored inflation benchmark is the personal consumption expenditures, or PCE, price index. But the August CPI and PPI data will provide a "pretty accurate idea" of the coming PCE number, Waller said on Thursday. "That is why we can focus on those two numbers, because they pretty much tell us what's going to happen," he said.

The Bureau of Economic Analysis plans to implement methodological changes to the calculation of PCE inflation with the Sept. 30 release. They are expected to shave as much as several tenths of a percentage point off the PCE inflation reading.

That makes the details contained in the PPI and CPI data particularly important, as Warsh suggested at Jackson Hole. To get a better sense of the underlying inflation trends, Warsh said, he studies the individual components of the price measures to determine how many are still growing by more than 3% a year.

The Fed's traditional blackout period ahead of FOMC meetings begins on Sept. 5, meaning that markets have heard the last from Fed officials ahead of September's policy decision. Investors will have to judge without further guidance whether cool inflation prints mean the Fed still has leeway to hold.