Kevin Warsh Pushes Trimmed Inflation Measures
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- Kevin Warsh urged the Fed to adopt trimmed averages for inflation measurement, arguing they remove outliers and give a clearer price trend.
- Dallas Fed reported its trimmed‑mean PCE at 2.3%, lower than the core PCE reading.
- Cleveland Fed reported its median PCE at 2.8%, also below the core PCE level.
- Loretta Mester warned that trimmed inflation measures can carry a downward bias, especially in the current environment.
- Krishna Guha said that using alternative metrics could be seen as shifting goalposts, a risky move for the Fed.
- Warsh proposed a broad review of Bureau of Labor Statistics and private‑sector data to “survey a billion prices” for better median price tracking.
- Warsh advocated a smaller Fed balance sheet, saying it would let interest rates stay lower and keep inflation more contained, though any change requires FOMC approval.
Why it matters: Warsh says a smaller balance sheet would lower the Fed's reported inflation and let it keep interest rates down, benefitting borrowers and those without large financial assets while risking a downward bias that could mislead policymakers and skew future policy decisions.
