Will Inflation Metrics Change?

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We’re talking about proposed changes to how inflation is calculated, and what that could mean under a new Fed Chairman, Kevin Warsh.

Now, before we get into the implications, let’s start with a simple premise. If you change how you measure something… you change the outcome. And if you change the outcome… you change the decisions that follow. That’s exactly what’s at stake here.

The Fed pays attention to the Core Personal Consumptions Expenditures index (Core PCE). But both of these measures have… let’s call them limitations.

They rely heavily on statistical adjustments. Hedonic adjustments. Substitution effects. Owner’s equivalent rent.

These are not trivial details. These are structural assumptions baked into the data.

For example, if steak becomes too expensive and consumers switch to chicken, the index assumes that substitution and dampens the measured inflation.

But here’s the problem. From a lived experience standpoint, people don’t feel like inflation has gone down. They feel like their standard of living has declined.

That disconnect between reported inflation and experienced inflation is one of the biggest credibility challenges facing central banks today.

And that’s where someone like Kevin Warsh could represent a shift. If a Warsh-led Fed were to move toward a more “common sense” measure of inflation—less adjusted, less modeled, more observable—you could end up with systematically higher reported inflation.

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