As Warsh's Fed faces pressure to act on inflation, these indicators show it's at its lowest in years

• The Dallas Fed's trimmed mean inflation measure dropped to 1.4% annualized in June (lowest since November 2020), while the 12-month rate fell to 2.2% (lowest since July 2021)
• Three Fed regional presidents (Logan, Kashkari, and Hammack) dissented from the decision to hold rates steady, preferring a quarter-point increase to address inflation that has run above target for over five years
• Dallas Fed President Logan cautioned that compositional factors may be causing the trimmed mean to 'drop too many increases right now,' potentially making it lower than the true inflation trend

Summary

Key Developments

Under Fed Chairman Warsh, alternative inflation metrics suggest price pressures are easing significantly. The Dallas Fed's trimmed mean measure showed June's one-month annualized inflation rate at just 1.4%—down 1.3 percentage points from May and the lowest since November 2020. The 12-month rate fell to 2.2%, its lowest level since July 2021. The Cleveland Fed's trimmed mean CPI registered 2.63%, also at multi-year lows.

Methodology

Trimmed mean measures exclude outlier price movements to provide a clearer inflation trend. The Dallas Fed excludes 24% of low-end and 31% of high-end readings from the Personal Consumption Expenditures (PCE) index. The Cleveland Fed's version uses the Consumer Price Index (CPI), excluding items below the 8th percentile and above the 92nd percentile.

Market Implications

Citigroup analysts suggest markets may price out rate hikes and potentially price in cuts if unemployment rises. This comes as Warsh indicated the Fed would examine a broader range of inflation metrics. However, official PCE inflation remains elevated at 3.7% headline and 3.3% core annually.

Internal Dissent

Three regional Fed presidents—Logan (Dallas), Kashkari (Minneapolis), and Hammack (Cleveland)—dissented from the recent decision to hold rates steady, preferring a 0.25% increase. Dallas Fed President Logan cautioned that compositional factors may cause trimmed mean measures to understate true inflation trends.

Treasury yields rose following the Fed's decision, reflecting market concerns about inflation persistence. Warsh acknowledged inflation above the 2% target for over five years "cannot be cured in nine weeks."