Warsh faces pressure to implement anti-inflationary policies as he heads the Federal Reserve, with multiple indicators showing inflation has fallen to its lowest level in recent years.
2026-08-01 02:40:52
June price data shows that, excluding a few categories of goods whose prices continued to rise, overall inflation is trending downward toward the Federal Reserve's target level. 
Data from the Dallas Federal Reserve shows that the annualized monthly cutoff mean inflation rate in June was only 1.4%, a significant drop of 1.3 percentage points from May, reaching a new low since November 2020. This type of cutoff mean inflation indicator, after removing outliers at both ends of the curve, has fallen to its lowest point since the beginning of this year. The 12-month year-on-year indicator, closely watched by Fed policymakers, fell to 2.2%, a decrease of 0.2 percentage points from the previous month, hitting its lowest level since July 2021. Fed officials emphasized that they would not draw conclusions based on a single month's data, but the downward trend in cutoff mean inflation may receive more attention. Fed Chairman Kevin Warsh plans to re-examine the central bank's inflation analysis framework and reference indicators, further increasing the focus on this data. Citigroup economist Andrew Hollenhorst wrote in a research report: "The current cutoff mean inflation reading is steadily approaching the target level." "Numerous indicators suggest that underlying inflation continues to slow toward the target, a signal made even more significant by Chairman Warsh's statement that a multi-dimensional approach will be used to assess inflationary pressures. We expect the market to gradually dispel expectations of interest rate hikes in the coming months; if the unemployment rate rises as we predict, the market will also begin pricing in rate cuts." The Principle of the Cut-Off Mean Inflation Indicator The logic of the cut-off mean inflation indicator is similar to exam curve grading: taking the Dallas Fed indicator as an example, the lowest 24% and highest 31% increases are removed, and the remaining data are averaged to remove extreme values and show the central level of inflation. This indicator is based on the Personal Consumption Expenditures Price Index (PCE), the Fed's primary inflation indicator, and the relevant data was released on Thursday. Data from the U.S. Department of Commerce showed that the overall PCE price index fell 0.1% month-over-month, mainly due to a sharp drop in fuel prices; the core PCE, excluding food and energy, rose 0.1% month-over-month. The year-over-year increases for both were 3.7% and 3.3%, respectively. The Cleveland Federal Reserve introduced a 16% cut-off mean CPI indicator, retaining price changes within the 8%–92% percentile range, using the Consumer Price Index (CPI) as a benchmark. In June, this indicator was 2.63%, the lowest since May 2021, the unrounded raw value. While the weight of such indicators in the Fed's monitoring system may increase under Warsh's leadership, several limitations remain. Dallas Fed President Lori Logan, who compiles this cut-off mean indicator, warned the market against over-interpreting the data, as changes in data structure can cause disturbances. She stated that internal research found that current changes in the structure of price increases have caused the cut-off mean indicator to remove too many price increase components, resulting in a reading lower than the true inflation level. The inflation outlook remains divided. This week's Fed meeting decided to maintain the benchmark interest rate, a decision Logan opposed. She advocated a 25 basis point rate hike, arguing that five consecutive years of inflation above target require policy tightening. Logan issued a statement on Friday: Even considering productivity gains and short-term supply shocks, the inflation center remains roughly above 2%, still some distance from the 2% target, and the upside risks to inflation cannot be ignored. Minneapolis Fed President Neal Kashkari and Cleveland Fed President Beth Hammark also voted against the move. Both believe inflation remains worryingly high and the Fed should act immediately, rather than continuing to wait and see. This week, capital markets are focused on overall inflation data, with concerns that the Fed's pause in rate hikes could exacerbate inflationary pressures. Treasury yields surged, particularly long-term yields, as investors repriced long-term economic growth and inflation expectations. Warsh held only cautious optimism about the downward trend in inflation. He acknowledged some positive signs on the production side but emphasized that the Fed still has a lot of work to do. "All FOMC members are very clear-headed. We are entering a new phase of policy, and the problem of five consecutive years of inflation exceeding the target cannot be solved in just nine weeks, or by relying on a single month of slight deflation."
Data from the Dallas Federal Reserve shows that the annualized monthly cutoff mean inflation rate in June was only 1.4%, a significant drop of 1.3 percentage points from May, reaching a new low since November 2020. This type of cutoff mean inflation indicator, after removing outliers at both ends of the curve, has fallen to its lowest point since the beginning of this year. The 12-month year-on-year indicator, closely watched by Fed policymakers, fell to 2.2%, a decrease of 0.2 percentage points from the previous month, hitting its lowest level since July 2021. Fed officials emphasized that they would not draw conclusions based on a single month's data, but the downward trend in cutoff mean inflation may receive more attention. Fed Chairman Kevin Warsh plans to re-examine the central bank's inflation analysis framework and reference indicators, further increasing the focus on this data. Citigroup economist Andrew Hollenhorst wrote in a research report: "The current cutoff mean inflation reading is steadily approaching the target level." "Numerous indicators suggest that underlying inflation continues to slow toward the target, a signal made even more significant by Chairman Warsh's statement that a multi-dimensional approach will be used to assess inflationary pressures. We expect the market to gradually dispel expectations of interest rate hikes in the coming months; if the unemployment rate rises as we predict, the market will also begin pricing in rate cuts." The Principle of the Cut-Off Mean Inflation Indicator The logic of the cut-off mean inflation indicator is similar to exam curve grading: taking the Dallas Fed indicator as an example, the lowest 24% and highest 31% increases are removed, and the remaining data are averaged to remove extreme values and show the central level of inflation. This indicator is based on the Personal Consumption Expenditures Price Index (PCE), the Fed's primary inflation indicator, and the relevant data was released on Thursday. Data from the U.S. Department of Commerce showed that the overall PCE price index fell 0.1% month-over-month, mainly due to a sharp drop in fuel prices; the core PCE, excluding food and energy, rose 0.1% month-over-month. The year-over-year increases for both were 3.7% and 3.3%, respectively. The Cleveland Federal Reserve introduced a 16% cut-off mean CPI indicator, retaining price changes within the 8%–92% percentile range, using the Consumer Price Index (CPI) as a benchmark. In June, this indicator was 2.63%, the lowest since May 2021, the unrounded raw value. While the weight of such indicators in the Fed's monitoring system may increase under Warsh's leadership, several limitations remain. Dallas Fed President Lori Logan, who compiles this cut-off mean indicator, warned the market against over-interpreting the data, as changes in data structure can cause disturbances. She stated that internal research found that current changes in the structure of price increases have caused the cut-off mean indicator to remove too many price increase components, resulting in a reading lower than the true inflation level. The inflation outlook remains divided. This week's Fed meeting decided to maintain the benchmark interest rate, a decision Logan opposed. She advocated a 25 basis point rate hike, arguing that five consecutive years of inflation above target require policy tightening. Logan issued a statement on Friday: Even considering productivity gains and short-term supply shocks, the inflation center remains roughly above 2%, still some distance from the 2% target, and the upside risks to inflation cannot be ignored. Minneapolis Fed President Neal Kashkari and Cleveland Fed President Beth Hammark also voted against the move. Both believe inflation remains worryingly high and the Fed should act immediately, rather than continuing to wait and see. This week, capital markets are focused on overall inflation data, with concerns that the Fed's pause in rate hikes could exacerbate inflationary pressures. Treasury yields surged, particularly long-term yields, as investors repriced long-term economic growth and inflation expectations. Warsh held only cautious optimism about the downward trend in inflation. He acknowledged some positive signs on the production side but emphasized that the Fed still has a lot of work to do. "All FOMC members are very clear-headed. We are entering a new phase of policy, and the problem of five consecutive years of inflation exceeding the target cannot be solved in just nine weeks, or by relying on a single month of slight deflation."
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