One of the inflation indicators preferred by Federal Reserve Chair Kevin Warsh registered a modest easing in April, but the people who produce that indicator say the number should be interpreted with care.
The Dallas Feds trimmed mean measure of year-over-year inflation fell to 2.3% in April from 2.4% in March, according to the Fed banks latest release. The gauge, which removes the fastest-rising and fastest-falling components of the index to capture a middle trend, is one of the measures Warsh identified in his confirmation hearing as a signal he watches closely.
Yet even supporters of the trimmed mean advise against drawing too optimistic a conclusion from the headline. "You would want to be cautious on getting too much optimism from the level of the trimmed mean," Dallas Fed economist Tyler Atkinson said in an interview days before the latest data was made public.
Atkinson explained that the trimmed mean normally performs well in sifting out volatile outliers - in Aprils data, examples of that volatility included surging prices for gasoline, airfare and jewelry, alongside declines in poultry, household linens and haircuts. The method removes extreme movements on both ends of the distribution to leave a more representative central set of price changes that historically can indicate where inflation is headed.
But recent events have distorted the methods balancing act. Tariffs imposed by President Donald Trump over the last year have raised prices across a substantial swath of goods, Atkinson said, reversing the usual skew where items with falling or slow-rising prices typically outnumber steeply rising ones. Under the trimmed means methodology - which discards the top 31% and the bottom 24% of items in the index - that reversal can push the gauge lower and risk understating true underlying price pressures.
Atkinson noted the trimmed mean has previously delivered misleading signals on two occasions: after the financial crisis and during the post-pandemic inflation surge. In both cases, the measure suggested cooler inflation ahead than ultimately materialized.
By contrast, the broader measure many Fed officials use to assess underlying inflation - the core personal consumption expenditures price index excluding energy and food - rose 3.3% in the 12 months through April, the Commerce Departments Bureau of Economic Analysis reported. That reading was the fastest year-over-year increase since 2023 and drew a pointed reaction from Fed Governor Lisa Cook, who said the number is "clearly moving in the wrong direction."
At his confirmation hearing last month, Warsh said he prefers to take his signal from "trimmed averages" and told Democratic Senator Catherine Cortez Masto he believes inflation "has improved somewhat in the last year." Still, some market analysts remain unconvinced that the trimmed means apparent disinflation is genuine.
"We think it is difficult to argue that the disinflation signaled by the trimmed mean is real," wrote Standard Chartered Bank analysts Steve Englander and Dan Pan, calling attention both to the Dallas Fed measures statistical behavior under current conditions and to its historical track record as a predictor of future inflation relative to core PCE.
The Dallas Fed has said it does not plan to alter the trimmed means methodology. Atkinson suggested the measurement issue could resolve itself if tariff-driven price pressures fade as anticipated. Until that happens, he recommended that policymakers not rely on any single indicator. "At the Dallas Fed, we really like the trimmed mean," he said. "But any policymaker would say, you dont just look at a single measure, look at lots and lots of them."
What this means for policy and markets
The divergence between the trimmed mean and core PCE highlights a measurement tension that matters for interest-rate decisions. If the trimmed mean is understating inflation, policymakers who privilege it could risk underestimating persistent price pressures. Conversely, if core PCE captures firming services and broader pressures more accurately, the case for additional monetary tightening will be stronger. The debate is likely to shape discussions at the Fed as officials weigh multiple indicators in setting policy.
Data limitations and interpretation
Whereas the trimmed mean intentionally discards certain extremes to expose a central trend, that very mechanism becomes a potential weakness when widespread, tariff-driven price increases shift the distribution of price movements. The methodologys specific cutoffs - trimming the top 31% and bottom 24% of items - are unchanged, meaning the gauge can behave differently depending on the underlying skew in price changes.
Officials and analysts alike caution that no single metric should dominate the view of inflations trajectory. The trimmed mean is a useful tool, but its recent readings should be weighed alongside other inflation indicators until the distortion created by tariffs subsides.