Economist Criticizes Fed's Preferred Inflation Metric as Unreliable

Huo Xing Cai Jing reports that on June 16, Federal Reserve Chair Walsh expressed a preference for an alternative measure of inflation—the "trimmed-mean PCE inflation"—which excludes extreme values before calculating the weighted average. Brian Bethune, Professor of Economics at Boston College, stated that the trimmed-mean PCE is not currently the most reliable indicator. In short, it performs best when inflation shocks resemble those seen between 2009 and 2019—prior to the 2020 COVID-19 crisis—because positive and negative shocks were better balanced. However, when price shocks are primarily driven by upward factors—such as supply disruptions, tariffs, surging oil prices, or major special sporting events like the World Cup—the indicator tends to understate inflation. "Therefore, I hope someone will challenge him on this," said Bethune. Regardless of which metric is referenced, U.S. inflation has remained above the Fed’s 2% target since spring 2021. (Jin Shi)