Kevin Warsh wants to retire the inflation gauge the Federal Reserve has relied on for two decades.

Speaking at his Senate confirmation hearing on Tuesday, President Donald Trump's pick to replace Jerome Powell dismissed core personal consumption expenditures - the Fed's preferred measure of underlying price pressure - as a "rough swag as to what was going on" with prices.

He wants to replace it with trimmed-mean and median PCE, alternative gauges produced by the Dallas and Cleveland Feds.

The swap sounds technical. It would move the Fed 70 basis points closer to the target on paper without a single price changing.

How The Fed's Favorite Inflation Gauge Could Change

Core PCE, the measure the Fed has leaned on since the mid-2000s, works by a simple rule: take the full basket of what Americans buy, then throw out food and energy every single month.

The assumption is that those two categories swing too much to tell policymakers anything useful about underlying price trends.

Warsh thinks that rule is lazy. His preferred measures work differently.

Trimmed-mean PCE ranks every item in the basket by how much its price moved, then cuts off the extremes at both tails - the Dallas Fed typically trims roughly a quarter of the index from each side.

Under Powell's gauge, the Fed is still one full percentage point above target. Under Warsh's preferred gauge from Dallas, it's almost there.

Median PCE from the Cleveland Fed goes further and isolates just the single component sitting at the 50th percentile. The items excluded change each month, which is the point.

Inflation GaugeSource12-Month (Feb 2026)Distance From 2% Target

Headline PCEBureau of Economic Analysis /2.8%/ +80 bps

Core PCE (ex food, energy)Bureau of Economic Analysis /3.0%/ +100 bps

Trimmed-Mean PCEFederal Reserve Bank of Dallas /2.3%/ +30 bps

Median PCEFederal Reserve Bank of Cleveland /2.8%/ +80 bps

The Street Has Three Different Reads On Warsh

Bank of America Securities sees the framework switch as the cleanest dovish signal from the hearing.

The bank's US economist Aditya Bhave highlighted that political dynamics and a dovish Fed instinct would ultimately beat near-term inflation stickiness.

Bhave told clients that BofA "still expects cuts this year given the Fed's bias to look through supply-driven inflation," citing limited wage pressure and political pressure on the central bank.

According to Bhave the Warsh shift on inflation carries two risks.

The first is that energy and food shocks, far from becoming irrelevant, could actually matter more under the new framework. Even when those shocks themselves get trimmed out, they can push the trimmed mean higher by preventing other components from being trimmed.

The second risk is optical. Warsh will need to stick with his preferred metrics even when they are outpacing core PCE, or face accusations of cherry-picking.

'Legacy Of Policy Errors'

Goldman Sachs economist Alec Philips highlighted that Warsh pinned the current pace of above-target inflation on what he called "the legacy of the policy errors of 2021 and 2022."

Philips underscored that both Warsh-preferred gauges are running substantially lower than core PCE - 2.3% and 2.8% year-over-year respectively versus 3.0% on core - and on a six-month annualized basis, the gap is wider still.

Trimmed-mean PCE is running at roughly 2.0% annualized over the last six months by Goldman's tally. Core PCE is running at 3.4%. Phillips also flagged that Warsh wants to reduce the balance sheet slowly and deliberately while coordinating with Treasury, a stance that would mark a cleaner break from the ad hoc QT-pace adjustments of the Powell era than the inflation-framework change itself.

Peter Williams, analyst at 22V Research, pushed back in a note published after the testimony, indicating that Warsh's statements on the economy itself pointed in a very different direction than his tone on inflation measurement.

"Many of Warsh's statements would be surprisingly hawkish taken on their own merits," Williams wrote.

His characterization of the labor market as close to full employment combined with his reluctance to pin recent inflation on tariffs is, in Williams's framing, "not one calling for cuts."

Williams also flagged that Warsh's rejection of forward guidance rules out much of the policy framework the Fed has relied on since the global financial crisis, which could make future rate decisions more volatile rather than more predictable.

The Gauge Swap Is One Piece of A Bigger Break

Ditching core PCE is not the only change Warsh wants. His hearing made clear he is planning what he called a regime change in the conduct of policy.

Forward guidance would be scaled back sharply. "I don't believe in forward guidance," Warsh told Senator Elizabeth Warren (D-Mass.) during one of the hearing's sharper exchanges on Tuesday.

He argued the Fed has held onto its own published forecasts longer than it should because policymakers feel bound by their own dots. He also declined to commit to maintaining Jerome Powell's practice of a press conference after every FOMC meeting.

On The Labor Market

"Broadly speaking, the economy is running about close to full employment," Warsh told Senator Amy Klobuchar (D-Minn.).

That is not the language of a Fed chair walking into the job ready to cut rates because jobs are falling apart.

On the causes of inflation itself, Warsh delivered what may be the most revealing line of the hearing. "When inflation moves up, that's because the Fed had something to do with it," he said.

That is a monetary-policy-dominance view that sits uneasily next to his willingness to dismiss tariffs and geopolitics as drivers of today's price pressure.

On the balance sheet, Warsh wants to shrink it faster than Powell has.

He called the $6.7 trillion holding a recurring force rather than an emergency tool and blamed it for widening the wealth gap between households that own financial assets and those that don't.