Kevin Warsh, Chairman of the Federal Reserve, speaking at the ECB Forum in Sintra, Portugal, July 1, 2026.
CNBC
Chairman of the Federal Reserve Kevin Warsh declared that inflation was a “choice”. The same could be true for how inflation is measured.
While the central bank has its own preferred indicator, courtesy of the Commerce Department, the public database is full of other indicators to better perceive price pressures.
It’s likely that many of these will come under serious scrutiny as the Warsh Fed charts what it called on Wednesday a “new path” for how it will operate — and specifically what data will trigger how it implements monetary policy.
“My hope, my aspiration, is that within nine to 12 months we will be using new technologies to understand what is happening in the real economy in a contemporary, real-time way, which will position us as central bankers to make better decisions,” he said during a debate at the Central Bank. European Central Bank Forum on Monetary Policy in Sintra, Portugal.
Warsh formed five working groups to examine a range of Fed functions. One will be data-driven while another will examine how policymakers measure and respond to inflation.
The review will certainly focus on much more than the age-old battle between headline inflation and core inflation, the latter of which excludes the daily necessities of gasoline and groceries due to the volatility of those prices.
Instead, the Fed can use this process as a way to introduce other data points that paint a more complete picture of the cost-of-living challenges consumers face due to inflation, which has been boiling over for five years.
A variety of choicesThese include measures from other central banks such as the Dallas Fed and a focus on “trimmed average” inflation that includes outliers. Or the Atlanta Fed’s “sticky” and flexible inflation, which distinguishes between prices that tend to rise and fall a lot and those that are more stable. There are also widely followed investigations from the Atlanta Fed. University of Michigan and the New York Fedas well as private sector measures such as the “Truflation” gauge which uses “cutting-edge technology to provide the world’s only verifiable daily inflation indices.”
Perhaps not surprisingly, these measures can and do present very different pictures of inflation, with some reinforcing the idea that prices are still too high and others arguing that the Fed may be closer to its 2% target than traditional measures indicate.
“A good read on where inflation is heading is key to determining whether the Fed should change rates,” Claudia Sahm, chief economist at New Century Advisors, wrote in a Substack article Tuesday. “But trend is not destiny: even a 2% trend does not guarantee price stability, since actual inflation can deviate from trend, as is currently the case.”
A general look at key indicators shows that inflation is well above the Fed’s 2% target.
THE consumer price index – a broad amalgamation of what consumers pay for goods and services – showed headline inflation of 4.2% annually in May, with core inflation of 2.9%.
At the same time, the personal consumption expenditure price index — the Fed’s preferred gauge, which more aggressively adjusts to changes in consumer behavior, such as replacing cheaper items with more expensive ones — pegs the respective figures at 4.1% and 3.4%. Economists largely believe that core inflation is a better indicator of long-term inflation because it omits the most volatile categories, which is especially important today given the impact of the war in Iran on energy prices.
Out of the normOther indicators, however, show different results.
THE The Dallas Fed ‘reduced the average’ an average of inflation figures that excludes the 24% of items with the lowest price changes and 31% of items with the highest price changes, shows a 12-month rate of just 2.4%. But there is an important caveat to what is otherwise considered a reliable measure: Dallas Fed President Lorie Logan has warned that the methodology currently being deployed could rule out bad prices.
Elsewhere, the Atlanta Fed flexible and sticky price gauges present a fascinating dichotomy: sticky prices at a 12-month annualized rate of 3.1% and flexible prices at 7%, the highest since November 2022.
On the other hand, Truflation paints a much more benign pictureat only 1.75%. The measure mostly moved in the direction of the CPI and PCE indicators, but showed a much higher peak of 11.5% in June 2022, a time when the CPI had peaked around 9%.
Finally, market-based measures also indicate a less severe inflation environment.
THE 2-year Treasury yieldsensitive to the vagaries of Fed rate policy, erupted after Warsh’s first press conference in June, but has since subsided somewhat. Likewise, the Treasury market five-year inflation indicator has plunged since May and now stands at just 2.26% and the “balance” rate over one year has fallen almost half a percentage point since May, although it remains elevated around 3%.
For Warsh, all of this data, along with others from various agencies, presents a complex mosaic that his task forces will have to wade through. The president indicated Wednesday that the Fed’s criteria would change dramatically and be more responsive to the current environment.
“We’re no longer going to have to rely solely on the data we get from government agencies that have measurement problems and whose surveys are no longer relevant,” Warsh said. “If we do our job, we’ll be here in a year and saying we’ve discovered data that helps us make better decisions and we’re keeping our promise.”
