Warsh Backs Alternative Inflation Gauge Showing Softer Price Pressures

Kevin Warsh’s expected nomination as the next chair of the Federal Reserve comes as the Senate prepares for a confirmation vote and a new round of inflation data approaches, Nicole Goodkind reported for Barron’s Daily.

The difference between the two measures could influence whether the Fed has room to cut interest rates.

Warsh favors a different way of measuring inflation that produces readings nearly a full percentage point lower than the Fed’s preferred gauge.

Federal Reserve officials traditionally monitor inflation using the personal consumption expenditures (PCE) price index, particularly core PCE, which excludes food and energy prices.

During testimony before the Senate Banking Committee, Warsh said he prefers the “trimmed mean” inflation measure, which focuses on broad price trends while excluding extreme price swings.

By that measure, inflation in March rose 2.4% from a year earlier, according to the Dallas Fed, compared with a 3.2% increase in core PCE.

The difference between the two measures could influence whether the Fed has room to cut interest rates.

Unlike core PCE, which permanently excludes food and energy categories, the trimmed mean removes only the most extreme monthly price changes across all categories before calculating inflation.