The Dallas Fed Trimmed Mean PCE price index came in at +1.4%, down significantly from +2.7% in the prior month. The figure is notably lower than the headline PCE, which registered 3.7%, and the core PCE at 3.3%. It also marks the lowest reading for the trimmed mean measure going back to 2020 — a period when pandemic-era demand collapses pushed inflation sharply lower. At 1.4%, the trimmed mean is now running well below the Federal Reserve's 2% inflation target.

The 190-basis-point gap between the trimmed mean and headline PCE is unusually wide, suggesting that a significant share of measured inflation is concentrated in components with outsized price moves rather than being broadly distributed across the consumption basket.

Understanding the Trimmed Mean PCE

The Dallas Fed Trimmed Mean PCE Inflation Rate is an alternative measure of inflation designed to filter out the "noise" from unusually large price moves and provide a clearer picture of the underlying inflation trend.

It starts with the same data as the Fed's preferred inflation gauge — the Personal Consumption Expenditures (PCE) Price Index. However, instead of removing fixed categories such as food and energy (as Core PCE does), the trimmed mean removes the most extreme price increases and decreases each month, regardless of category. After trimming those outliers, it calculates the inflation rate from the remaining components.

This approach matters because inflation data can be distorted by one-off events — airline fares surging, gasoline prices collapsing, egg prices spiking due to supply issues, or hotel rates jumping because of a special event. Those moves can temporarily skew headline inflation.

The categories trimmed change every month. If gasoline prices are stable, they remain in the calculation. If medical services suddenly jump 10% in a month, they could be trimmed out.

Why the Fed Watches It

Many economists regard the trimmed mean as one of the best measures of persistent inflation because it reduces monthly volatility, is less affected by temporary supply shocks, and has historically been a good predictor of future headline inflation.

For context, headline PCE reflects what consumers are experiencing, while core PCE removes food and energy but can still be influenced by other volatile categories. The Dallas Fed Trimmed Mean PCE is often viewed as providing the clearest assessment of underlying inflation momentum and is closely watched by many Fed officials when evaluating whether inflation pressures are becoming persistent.

Source: Investinglive

Chair Warsh's Comments on Inflation Measures

During yesterday's press conference and his recent Congressional testimony, Fed Chair Warsh discussed alternative measures of inflation. Key quotes from the press conference include:

On the inflation target: "There is no soft target for inflation. There is no alternative target. There is only a 2% inflation target."

On looking beyond a single inflation gauge: "We're looking at a broader set of inflation measures than simply the headline PCE."

On the rationale: "We want to understand the underlying trend in inflation, not simply react to individual data points."

These remarks are consistent with his Congressional testimony earlier this month, where Warsh stated: "The trimmed mean is my preferred measure of inflation." He also said: "We should improve how we measure the true rate of inflation in the U.S. economy."

Outlook

The latest data point is the lowest trimmed mean reading since 2020 and represents another step in the direction the Fed has been seeking. However, a single report is unlikely to be sufficient to materially shift the inflation outlook — the trend will need to continue. Chair Warsh appears to be placing greater emphasis on measures of underlying inflation, while also making clear that he wants more evidence before drawing firm conclusions about the best gauge of inflation or the appropriate policy response.