Recent data shows inflation in the U.S. may be cooling more than traditional reports suggest, as trimmed mean inflation indicators reached their lowest levels since the early 2020s. These measures, favored by the Federal Reserve for filtering out extreme price changes, indicated a sharp decline in June’s inflation, with the Dallas Fed’s trimmed mean measure showing an annualized inflation rate of just 1.4% for the month and a 12-month rate of 2.2%, closer to the Fed’s 2% target. This development comes as Fed Chairman Kevin Warsh plans to reassess how inflation is measured and which data points the central bank should prioritize.

Trimmed mean inflation estimates work by excluding the most volatile price changes, focusing on a clearer core trend. The Dallas Fed’s measure removes roughly a quarter of the lower and upper price changes, using the personal consumption expenditures price index (PCE), which is key for Fed policy decisions. Meanwhile, the Cleveland Fed’s similar trimmed mean measure, based on the consumer price index, also saw inflation at its lowest since May 2021 in June. These alternative inflation gauges might gain traction under Warsh’s leadership, as they present a more nuanced picture of price pressures compared to headline numbers.

Despite these more optimistic trimmed mean signals, skepticism remains. Dallas Fed President Lorie Logan cautioned that the trimmed mean data might underestimate true inflation due to changes in the mix of price increases and decreases. Logan dissented from the recent Federal Open Market Committee decision to hold rates steady, advocating instead for a rate hike given inflation’s persistent elevation above target for over five years. Other Fed officials, including Neel Kashkari and Beth Hammack, share concerns that inflation remains uncomfortably high and support continued tightening to prevent further price rises.

The market has reacted to these mixed signals, with bond yields surging amid worries that the Fed’s pause could worsen inflation. Although Warsh acknowledged some positive economic signs, he emphasized that significant inflation has not been reversed in a short period and highlighted the ongoing challenges the Fed faces. His cautious stance reflects the complexity of navigating inflation trends using varied indicators, underscoring the tension between traditional inflation metrics and newer trimmed mean measures as policymakers consider their next moves.