Kevin Warsh’s Inflation Gauge Matters Now

Mortgage markets finally caught a break last week. In this episode of Master the Markets, host and expert Bill Bodnar explains how a sharp drop in oil prices helped drive a meaningful rally in bonds, pushing the 10-year Treasury yield from 4.70% to below 4.50% and creating a welcome improvement in mortgage pricing.
But the bigger story may be happening inside the Fed. While investors have traditionally focused on Core PCE as the Fed’s preferred inflation gauge, Bill highlights a metric that could become increasingly important under Fed Chair Kevin Warsh: the Dallas Fed Trimmed Mean PCE. Unlike traditional inflation measures, this gauge removes the hottest and coolest price categories to provide a more stable view of underlying inflation trends. Currently, it’s running at 2.3% year over year, much closer to the Fed’s long-term inflation target.
Looking ahead, attention shifts to Friday’s jobs report, a critical piece of the Fed’s dual mandate. Labor market strength or weakness could heavily influence the next move in rates.