Jerome Powell Favors Inflation Indicator Dropping to 2.3%, but Economists Warn It May Underestimate True Inflation

May 29: Dallas Fed data reveals its Trimmed Mean inflation gauge dropped to a 2.3% year-over-year rate in April, down from March’s 2.4%. The measure—a trimmed-average inflation metric highlighted by new Federal Reserve Chair Kevin Warsh during his confirmation hearings—is widely viewed by markets as key backing for his claim that inflation is improving. But several economists and policymakers caution the gauge may now systematically understate actual inflationary pressures. Dallas Fed economist Tyler Atkinson explained that Trump’s tariffs over the past year pushed most commodity prices higher at once, breaking the statistical distribution assumptions underlying the Trimmed Mean model. The current formula excludes the top 31% of price increases and bottom 24% of price declines, which Atkinson says artificially suppresses headline inflation readings. April’s excluded categories include fast-rising items like gasoline, airfare, and jewelry, plus falling goods such as poultry, linens, and haircuts. Analysts note a similar gap occurred during the post-pandemic inflation surge, when the Trimmed Mean signaled mild inflation while real prices ran far hotter. Separately, the Fed’s long-favored core PCE index continues to climb: U.S. Commerce Department data shows the 12-month core PCE rose 3.3% year-over-year in April, its fastest pace since 2023. Standard Chartered analysts called the Trimmed Mean’s “anti-inflation signal hard to believe,” adding the measure lags core PCE in both historical performance and predictive power. Harvard economist Jason Furman added the indicator now “looks more like cherry-picked data to prop up a specific narrative” rather than a rigorously tested, consistent framework.