The new Chairman of the Federal Reserve, Kevin Warsh, appears to favour giving greater weight to the Trimmed Mean PCE at the expense of the traditional Core PCE, which has been the benchmark indicator to date. The distinction is not insignificant. Whilst the Core PCE systematically excludes food and energy, the Trimmed Mean discards components with the most extreme price fluctuations, regardless of their category. A more surgical approach, in theory.
Juan Pablo Calle, senior portfolio manager at Acacia Inversión, explains that “The debate over which measure best reflects inflation in the United States has once again taken centre stage. The new Chairman of the Federal Reserve, Kevin Warsh, appears to favour giving greater weight to the Trimmed Mean PCE at the expense of the traditional Core PCE, which has been the benchmark indicator to date. The distinction is not insignificant. Whilst the Core PCE systematically excludes food and energy, the Trimmed Mean discards components with the most extreme price fluctuations, regardless of their category. A more surgical approach, in theory.
Its proponents argue that this methodology provides a more stable reading of core inflation, filters out the noise generated by temporary shocks and allows for a more precise monetary policy. Some studies also suggest that the Trimmed Mean better anticipates future price trends. The counter-argument, however, deserves consideration. An excessively refined measure may mask relevant signals. Inflationary episodes tend to take root in specific sectors before spreading to the wider economy, and eliminating these extreme movements could delay the central bank’s response at critical moments.
What adds tension to the debate is the context. Both metrics have historically evolved in a very similar manner, with significant divergences occurring only at exceptional times, such as the inflationary episode of 2021–2022. That divergence is beginning to reappear in 2026, and it does so precisely when the Federal Reserve’s independence is under political pressure. In this scenario, this discussion takes on particular significance. It could be interpreted as a signal favouring the maintenance or even a cut in interest rates, in line with the preferences expressed by the current US administration. The question investors must ask themselves, ultimately, is whether we are witnessing an attempt to improve the measurement of inflation or to change the thermometer because we do not like the temperature it reads.”
