Federal Reserve Chair Kevin Warsh’s Inflation Measurement Shift

Yardeni Research reports that Federal Reserve Chair Kevin Warsh is signaling a departure from the traditional 2% headline Personal Consumption Expenditures (PCE) inflation target, favouring a focus on underlying price pressures rather than the headline PCE figure. Unlike former Chair Jerome Powell, who consistently linked the Fed’s price‑stability goal to headline PCE, Warsh has not identified the PCE index as the explicit benchmark and has emphasized persistent inflation trends over temporary price swings.

In congressional testimony, Warsh described both consumer and producer price indexes as imperfect gauges of underlying inflation and argued that one‑off price increases should not automatically trigger a monetary‑policy response, especially when such spikes may later be offset by supply‑side improvements. He advocated for inflation measures that filter out transitory shocks.

To operationalise this approach, Warsh has established a task force tasked with identifying the most appropriate metric of underlying inflation. Yardeni identifies the leading candidates as:

  • The Dallas Federal Reserve’s Trimmed‑Mean PCE inflation gauge, which removes extreme price movements across categories.
  • Unit labour costs, reflecting wage‑related inflation pressures.
  • “Supercore” inflation, which measures services inflation while excluding housing and energy components.

Yardeni notes that supercore inflation offers a clearer view of demand‑driven price pressures, as it isolates domestic demand and labour‑market conditions and filters out temporary shocks from tariffs, supply‑chain disruptions, and goods‑price volatility. Because monetary policy can more directly influence wages, hiring and demand than commodity prices or supply constraints, supercore inflation could provide a more actionable gauge for policymakers.

The shift toward these underlying measures could make the Fed’s inflation objective less transparent to the public, as core, median and trimmed‑mean inflation have historically served as forecasting tools rather than explicit policy targets.