Senators Press Warsh on Resisting Trump Over Fed Inflation Gauge

Kevin Warsh, President Trump’s nominee for Federal Reserve chair, told the Senate Banking Committee on Tuesday in Washington that he favors using a trimmed-mean inflation gauge. Lawmakers, including Senator Elizabeth Warren, pressed him on whether he could resist political pressure from the president while setting monetary policy.

Warsh argued the Fed should focus on the “underlying inflation rate” and look through one-time price shocks from events such as geopolitical disruptions or sudden swings in food prices. He described a preference for “trimmed averages,” which remove the most extreme price changes so the remaining data reflect broader trends. He asked, “What I’m most interested in is: What’s the underlying inflation rate? Not: What’s the one-time change in prices because of a change in geopolitics or change in beef?” and added, “We take out all of the tail-risks, all of the one-off items, and we ask ourselves whether the generalized change in prices is having second-order effects on the economy.” He characterized the recent inflation trend as “quite favorable.”

The Fed currently emphasizes the core personal consumption expenditures price index, which excludes food and energy. Trimming works differently: it removes the largest moves across many categories rather than excluding entire sectors.

Bank of America economist Aditya Bhave calculated that a 12-month trimmed-measure would have shown a mean of 2.3% and a median of 2.8% as of February, compared with a 3.0% reading on the core PCE. Bhave warned the trimmed approach can produce different outcomes over time because smaller price increases can remain after the largest spikes are removed, and those smaller moves can come from food and energy. “Even if these shocks get trimmed out, they might still raise the trimmed mean by preventing other shocks from getting trimmed,” he said.

Bank of America’s data show a trimmed-median measure ran above the core PCE in 2019 and 2020. In those years, the trimmed gauge would have indicated hotter inflation and could have pushed policymakers toward tighter policy. Bhave added that if trimmed readings later outpaced the core PCE, a chair who chose the trimmed metric would face pressure to keep using it to avoid accusations of selecting the measure that best fits a preferred policy: “To preserve Fed credibility and avoid optics of cherry picking, Warsh will need to stick with his preferred metrics even when they are outpacing the core.”

Committee members questioned how Warsh would handle requests from the White House to change policy. Senator Warren and others asked whether he could resist pressure from President Trump to lower rates to stimulate growth. Warsh replied that monetary policy must remain independent from politics. In prepared remarks he wrote, “Monetary policy independence is essential,” and added that decisions should be “the product of analytic rigor, meaningful deliberation, and unclouded decision-making.”

The choice of inflation gauge affects the data the Fed cites when setting the federal funds rate. Those rate decisions influence short-term borrowing costs such as credit card rates and longer-term rates such as mortgages. If confirmed and if he adopts the trimmed-mean approach, Warsh would change the Fed’s metric for tracking inflation, a change that could lead to different interest-rate paths depending on how the trimmed readings compare with the core PCE over time.