Fed Chair Kevin Warsh Pushes Alternative Inflation Measures Amid Three-Year High
New Federal Reserve Chair Kevin Warsh is advocating for the central bank to focus on alternative inflation measures that show lower readings than traditional indicators, even as headline inflation hits its highest level in three years. The move is drawing criticism from economists who warn it could undermine the Fed's credibility.
What Happened
Inflation hit its highest level in three years last month, according to fresh data released this week — but new Federal Reserve Chair Kevin Warsh wants the central bank to focus on different measures. Federal Reserve Chair Kevin Warsh wants the central bank to rely on alternative inflation measures ahead of his first meeting next week. Warsh favors trimmed-mean averages that show lower inflation rates than traditional measures, but some Fed officials warn those gauges are currently unreliable.
The Inflation Challenge
The first inflation report under new Federal Reserve chief Kevin Warsh shows consumer prices in April were at their highest level in almost three years. The personal consumption expenditures price index — the Fed's preferred inflation measure — rose last month at an annual rate of 3.8%, the Commerce Department reported on Thursday. That's up from 3.5% in March and 2.8% from February, and the highest since May 2023.
Credibility Concerns
Critics say switching metrics now could undermine the Fed's credibility after years of above-target inflation. The Dallas Fed's trimmed-mean figure "is biased downward" these days because it's not fully capturing the abrupt jump from price shocks, Brian Bethune, an economics professor at Boston College, told CNN in a statement.
What's Next
There's now a 40% probability that the Federal Reserve will hike rates at its December meeting, up from 3% at its June meeting, according to CME FedWatch, which bases its predictions on 30-Day Fed funds futures prices. Warsh's preference for alternative metrics will shape the Fed's policy stance going forward, particularly as the central bank navigates persistent inflation and potential rate decisions later in the year.