BY EMMANUEL OGBONNA
A key inflation measure favored by new Federal Reserve Chair Kevin Warsh showed another modest easing in April, reinforcing his argument that price pressures are gradually improving even as a growing number of central bank officials warn inflation may still require tighter monetary policy.
The Dallas Federal Reserve’s closely watched trimmed mean inflation gauge rose 2.3% in April from a year earlier, down slightly from 2.4% in March, according to data released by the regional Fed bank. The reading marked another sign of moderation in a measure Warsh has publicly praised as one of the most reliable indicators of underlying inflation trends.
Warsh highlighted the importance of so-called “trimmed averages” during his Senate confirmation hearing last month, arguing they provide a clearer picture of inflation by filtering out volatile price swings that can distort broader data. Speaking before lawmakers, he said inflation conditions had “improved somewhat in the last year,” a view supported by the latest Dallas Fed reading.
But economists, including officials involved in producing the measure itself, cautioned that the gauge may currently be understating the true extent of inflation pressures in the U.S. economy.
Dallas Fed economist Tyler Atkinson said the trimmed mean measure works best during more typical economic conditions, when unusually large price increases or declines are concentrated in only a limited number of categories. The methodology excludes the most extreme price movements on both the high and low ends of the inflation spectrum, leaving what is intended to be a more stable representation of underlying trends.
In April, some of the sharpest price increases came from gasoline, airline fares and jewelry, while declines appeared in categories including poultry, household linens and haircuts. Under normal circumstances, the trimmed mean would smooth out those fluctuations and provide a useful signal about where inflation is likely heading.
However, Atkinson explained that the current environment is far from normal.
Tariffs imposed over the past year by President Donald Trump have pushed up prices across a much broader range of goods than is typically seen during inflationary episodes. That shift has altered the statistical balance that the trimmed mean methodology relies upon.
Historically, items with lower inflation or falling prices outnumber those experiencing rapid price increases. To compensate, the Dallas Fed’s formula removes a larger share of the highest inflation readings than the lowest ones. But with tariffs lifting prices across a wider segment of the economy, the usual distribution has effectively flipped.
As a result, trimming away the top 31% and bottom 24% of price changes — the formula built into the index — may now artificially suppress the final inflation reading, giving the impression that inflation is softer than it actually is.
Atkinson noted that similar distortions occurred during two previous periods: the aftermath of the global financial crisis and the inflation surge that followed the COVID-19 pandemic. In both cases, the trimmed mean suggested inflation would cool more quickly than it ultimately did.
The latest data from the Commerce Department painted a more concerning picture. The core personal consumption expenditures price index, which excludes food and energy and remains the Federal Reserve’s preferred inflation benchmark, rose 3.3% in the 12 months through April. That marked the fastest pace since 2023 and remained well above the Fed’s 2% inflation target.
Federal Reserve Governor said this week that inflation was “clearly moving in the wrong direction,” underscoring growing concern among policymakers that price pressures may be becoming more entrenched.
The divergence between the Dallas Fed’s trimmed mean gauge and the core PCE index has become increasingly pronounced in recent months, fueling debate inside financial markets and among economists over which measures policymakers should prioritize when assessing inflation risks.
Analysts at expressed skepticism that the cooling trend shown by the trimmed mean reflects genuine disinflation. Economists Steve Englander and Dan Pan argued that both the statistical quirks of the measure and its weaker historical track record in forecasting future inflation make it less reliable under current conditions.
They noted that core PCE historically has provided a stronger signal about the future path of inflation than the Dallas Fed’s trimmed mean index, especially during periods of widespread economic disruptions.
Despite the criticism, the Dallas Fed does not plan to alter the methodology behind the gauge. Atkinson said officials expect the distortions tied to tariff-related price increases to ease over time if those pressures begin to fade in the coming months.
Until then, economists and policymakers may need to rely on a broader range of inflation indicators rather than focusing too heavily on any single measure.
“At the Dallas Fed, we really like the trimmed mean,” Atkinson said. “But any policymaker would say, you don’t just look at a single measure — look at lots and lots of them.”
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