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US inflation rose 3.7% in September, more than economists expected and still well above the Federal Reserve’s 2% target, as the central bank weighs whether to hike interest rates again by year’s end.

The reading for the Consumer Price Index a closely watched measure of inflation that tracks changes in the costs of everyday goods and services matches the reading in August, and is slightly above the 3.6% advance that economists expected, according to data by the Bureau of Labor Statistics released Thursday.

On a monthly basis, inflation slowed to 0.4% from 0.6% in August, partly because of lower pressure from energy prices.

However, core CPI a number that excludes volatile food and energy prices and serves as a closely watched gauge among policymakers for long-term trends held steady at 0.3% month to month and rose 4.1% from a year ago, in line with expectations.

Though September’s CPI is also a cooldown from inflation’s 9.1% peak in June 2022, it still remains well above the Fed’s 2% goal. Stock futures dropped ahead of the market opening as traders increased their bets of another rate hike to around 50%, up from 30% earlier this week.

“The bigger picture is that the trend is still quite encouraging, but the fight continues,” said Olu Sonola, head of US regional economics at Fitch Ratings in New York. “They [Fed officials] may now want to extend the pause to December, given the recent increase in long-term rates.”

The gasoline index’s 2.1% advance was also a large contributor to the CPI, the data showed, though the federal agency said shelter’s 0.2% increase accounted for over half of the increase.

Gasoline experienced an eye-watering 10.6% increase last month, when AAA figures showed that the average price for a gallon of gas was $3.85.

As of Thursday, a gallon of gas in the US averages $3.65, according to AAA.

While many investors had been willing to look past the volatile energy numbers, a surprisingly resilient labor market has some worried that inflation could be more stubborn.

September’s employment report revealed that the US economy added a whopping 336,000 jobs last month — an unexpected surge that contradicts the notion the Fed may tamp down its aggressive tightening regime.

The blowout number was nearly double the 170,000 jobs economists had expected, and also sharply higher than an upwardly revised 227,000 jobs added in August, according to fresh data released by the Bureau of Labor Statistics last week.

The news sent yields on US Treasury bonds to their highest levels in 16 years and sent the Dow Jones Industrial Average into the red for 2023.

Since inflation hit a four-decade peak last summer, the central bank has worked to bring the stubborn figure down by hiking rates another 25 basis points to a 22-year high in August in hopes of an economic slowdown.

The benchmark federal funds rate currently sits between 5.25% and 5.5%. Last month, Fed officials unanimously decided to hold the record-high rate steady for the second time in six policy meetings so far this year.

But thanks to a strong labor market, the US economy has avoided a downturn, and even the Fed has said its no longer predicting the economy will slip into a recession by the end of the year.

“We must wait for more data to see if this is just a blip or if there is something more fundamental driving the increase such as higher rent increases in larger cities offsetting softer increases in smaller cities,” said US Bank of America Securities economist Stephen Juneau.

“When deciding whether to raise rates one last time this year, the FOMC will be asking whether inflation needs another nudge or if its getting to 2% on its own. Its increasingly looking like the latter,” NerdWallet data analyst Elizabeth Renter told The Post.

“The Fed, astheyreall too happy to remind us, is laser focused on getting inflation down to 2%.”

Fed Chair Jerome Powell has said central bankers will be taking a data-dependent approach moving forward, leaving more interest rate hikes before years end up in the air.

Markets were spooked ahead of the jobs report, falling more than 1% when the Labor Department released its Job Openings and Labor Turnover Summary, which showed job openings increased to 9.61 million in August up from 8.9 million in July.

With Post wires.

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Entertainment

Tilly Norwood: Creator of AI actress insists she’s not designed to steal jobs

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Tilly Norwood: Creator of AI actress insists she's not designed to steal jobs

The creator of an AI actress has told Sky News that synthetic performers will get more actors working, rather than steal jobs.

AI production studio Particle6 has ruffled feathers in Hollywood by unveiling Tilly Norwood – a 20-something actress created by artificial intelligence.

Speaking to Sky News’ Dominic Waghorn, actor and comedian Eline Van der Velden – who founded Particle6 – insisted Norwood is “not meant to take jobs in the traditional film”.

AI entertainment is “developing as a completely separate genre”, she said, adding: “And that’s where Tilly is meant to stay. She’s meant to stay in the AI genre and be a star in that.”

“I don’t want her to take real actors’ jobs,” she continued. “I wanted to have her own creative path.”

Norwood has been labelled “really, really scary” by Mary Poppins Returns star Emily Blunt, while the US actors’ union SAG-AFTRA said in a statement: “Tilly Norwood is not an actor, it’s a character generated by a computer program that was trained on the work of countless professional performers – without permission or compensation.”

Responding to the criticism, Ms Van der Velden argued that Hollywood is “going to have to learn how to work with [AI] going forward”.

“We can’t stop it,” she said. “If we put our head in the sand, then our jobs will be gone. However, instead, if we learn how to use these tools, if we use it going forward, especially in Britain, we can be that creative powerhouse.”

Eline Van der Velden said she wanted the character to 'have her own creative path'
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Eline Van der Velden said she wanted the character to ‘have her own creative path’

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Ms Van der Velden said her studio has already helped a number of projects that were struggling due to budget constraints.

“Some productions get stuck, not able to find the last 30% of their budget, and so they don’t go into production,” she said. “Now with AI, by replacing some of the shots […] we can actually get that production going and working. So as a result, we get more jobs, we get more actors working, so that’s all really, really positive news.”

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Politics

Budget 2025: Reeves urged to ‘make the case’ for income tax freeze – as PM hits out at defenders of ‘failed’ policy

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Budget 2025: Reeves urged to 'make the case' for income tax freeze - as PM hits out at defenders of 'failed' policy

Rachel Reeves needs to “make the case” to voters that extending the freeze on personal income thresholds was the “fairest” way to increase taxes, Baroness Harriet Harman has said.

Speaking to Sky News political editor Beth Rigby on the Electoral Dysfunction podcast, the Labour peer said the chancellor needed to explain that her decision would “protect people’s cost of living if they’re on low incomes”.

In her budget on Wednesday, Ms Reeves extended the freeze on income tax thresholds – introduced by the Conservatives in 2021 and due to expire in 2028 – by three years.

The move – described by critics as a “stealth tax” – is estimated to raise £8bn for the exchequer in 2029-2030 by dragging some 1.7 million people into a higher tax band as their pay goes up.

Rachel Reeves, pictured the day after delivering the budget. Pic: PA
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Rachel Reeves, pictured the day after delivering the budget. Pic: PA

The chancellor previously said she would not freeze thresholds as it would “hurt working people” – prompting accusations she has broken the trust of voters.

During the general election campaign, Labour promised not to increase VAT, national insurance or income tax rates.

Sir Keir Starmer has insisted there’s been no manifesto breach, but acknowledged people were being asked to “contribute” to protect public services.

He has also launched a staunch defence of the government’s decision to scrap the two-child benefit cap, with its estimated cost of around £3bn by the end of this parliament.

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Prime minister defends budget

‘A moral failure’

The prime minister condemned the Conservative policy as a “failed social experiment” and said those who defend it stand for “a moral failure and an economic disaster”.

“The record highs of child poverty in this country aren’t just numbers on a spreadsheet – they mean millions of children are going to bed hungry, falling behind at school, and growing up believing that a better future is out of reach despite their parents doing everything right,” he said.

The two-child limit restricts child tax credit and universal credit to the first two children in most households.

The government believes lifting the limit will pull 450,000 children out of poverty, which it argues will ultimately help reduce costs by preventing knock-on issues like dependency on welfare – and help people find jobs.

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Budget winners and losers

Speaking to Rigby, Baroness Harman said Ms Reeves now needed to convince “the woman on the doorstep” of why she’s raised taxes in the way that she has.

“I think Rachel really answered it very, very clearly when she said, ‘well, actually, we haven’t broken the manifesto because the manifesto was about rates’.

“And you remember there was a big kerfuffle before the budget about whether they would increase the rate of income tax or the rate of national insurance, and they backed off that because that would have been a breach of the manifesto.

“But she has had to increase the tax take, and she’s done it by increasing by freezing the thresholds, which she says she didn’t want to do. But she’s tried to do it with the fairest possible way, with counterbalancing support for people on low incomes.”

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She added: “And that is the argument that’s now got to be had with the public. The Labour members of parliament are happy about it. The markets essentially are happy about it. But she needs to make the case, and everybody in the government is going to need to make the case about it.

“This was a difficult thing to do, but it’s been done in the fairest possible way, and it’s for the good, because it will protect people’s cost of living if they’re on low incomes.”

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Politics

Is the government gaslighting us over tax rises?

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Is the government gaslighting us over tax rises?

👉 Click here to listen to Electoral Dysfunction on your podcast app 👈

With all the speculation, it was always going to be a big one, but Rachel Reeves’s second budget turned into a political earthquake before she even stood up at the despatch box.

In this bumper budget special, Beth, Ruth, and Harriet unpick what happened on one of the most dramatic days in the fiscal calendar.

With the unprecedented leak of the Office for Budget Responsibility’s assessment giving the opposition a sneak preview, Kemi Badenoch delivered a fiery attack. Listeners weigh in on their thoughts of her comebacks.

Send us your messages and Christmas-themed questions on WhatsApp at 07934 200 444 or email electoraldysfunction@sky.uk.

And if you didn’t know, you can also watch Beth, Harriet, and Ruth on YouTube.

St. James’s Place sponsors Electoral Dysfunction on Sky News, learn more here.

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