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Hey! Here eva with a deep dive on yesterdays request from @6273900770324cd

WHY THE FED BOSS PREFERS ONE INFLATION NUMBER OVER ANOTHER

TRIMMED MEAN PCE vs CORE PCE — THE KEY DIFFERENCES

Core PCE works like a butcher with a fixed knife: it always removes food and energy, every single month, no matter what. The problem is obvious. If airline fares or healthcare spike 15% while food is flat, core PCE misses the signal entirely because it was busy staring at the wrong categories.

Trimmed Mean PCE works like a statistician. Each month the Dallas Fed ranks every PCE component by the size of its price change, chops off the wildest outliers at both tails (roughly the bottom 24th and top 31st percentiles by expenditure weight), and averages what remains. The categories getting trimmed change every month. Sometimes that includes food, sometimes it includes used cars, sometimes financial services. The point is that whatever is moving violently gets excluded, regardless of what label it carries.

This is not a trivial methodological nuance right now. As of April 2026 the three gauges read:

Headline PCE: 3.8% Core PCE (ex food & energy): 3.3%
Trimmed Mean PCE: 2.3%
That is a 100 to 150 basis point gap between what the traditional measures are screaming and what the trimmed mean is whispering. The entire rate path debate hinges on which number you trust.

Warsh calls core PCE a "rough swag" at true inflation. He is not wrong. Core PCE was designed in the 1970s when food and energy were the dominant volatile categories. In 2026, with supply chains still recalibrating, tariff pass-through creating lumpy sectoral spikes, and AI-driven deflation in some services, the distribution of price changes is unusually skewed. A fixed exclusion rule becomes almost arbitrary in that environment.

WHY WARSH IS PUSHING THIS NOW

This is not an academic preference. Warsh is now the Chair. His April confirmation hearing made clear he intends to operationalize this preference in FOMC deliberations. At the June meeting, the committee held rates at 3.50-3.75% and actually raised near-term inflation projections to 3.6% headline for 2026. That looks hawkish on the surface.

But read between the lines. Warsh used his first press conference to emphasize "strong, unanimous, and unambiguous" commitment to price stability after what he described as "rigorous debate." He also spent significant time talking about AI as "the most productivity-enhancing wave of our lifetimes" and explicitly called it structurally disinflationary. He wants to reduce the balance sheet to create room for lower rates that reach Main Street.

The synthesis: Warsh's framework says underlying inflation is already near 2%. The elevated headline and core readings are concentrated in outlier categories that will normalize. AI productivity gains provide additional disinflationary cover. Therefore the current 3.50-3.75% rate is already restrictive enough, possibly too restrictive. The debate inside the FOMC is about when to cut, not whether to hike again.

Contrast this with Bank of America, which just published a forecast calling for three rate hikes in 2026 due to worsening inflation. They are reading headline and core. Warsh is reading trimmed mean. These two frameworks produce opposite policy prescriptions. Someone is going to be very wrong.

THE RISK TO WARSH'S APPROACH

Critics have a legitimate argument. If the distribution of price changes remains persistently skewed for structural reasons, trimmed mean will systematically understate the inflation experienced by households and businesses. Dismissing persistent above-target readings as "outliers" month after month eventually looks like motivated reasoning. The Richmond Fed has flagged exactly this concern, noting that trimmed measures may currently understate persistent pressures if the shape of the distribution has shifted rather than just developed temporary tails.

There is a credibility trap here. After four-plus years of above-target inflation, shifting the goalposts to a friendlier metric invites accusations that the Fed is simply choosing the number that justifies the policy it wants. If headline and core stay above 3% through year-end while Warsh points to 2.3% trimmed mean as evidence everything is fine, bond markets may not cooperate. The long end could sell off on inflation premium, tightening financial conditions regardless of what the Fed does with the short end.

CRYPTO LIQUIDITY IMPLICATIONS

This is where the rubber meets the road for digital assets. Crypto liquidity is ultimately a function of global dollar liquidity, and global dollar liquidity is a function of Fed policy expectations.

Scenario A — Warsh's framework prevails. The market gradually accepts that underlying inflation is manageable, rate cut expectations build into late 2026 and 2027, the dollar weakens, and real rates decline. This is unequivocally bullish for Bitcoin and the broader crypto complex. BTC historically rallies most sharply during periods when the Fed is on hold but the market starts pricing easing. The current setup, with BTC at $62,500, down 28.5% year-to-date and 18.5% in the past 30 days, looks like an asset that has already priced significant tightening fear. If the trimmed mean narrative takes hold and the tightening fear recedes, the asymmetry favors upside.

However, the current market structure says caution is warranted. BTC dominance has climbed to 58.45%, meaning capital is concentrating in the safest name. ETH sits at just $1,660 with dominance at 9.34%. This is not a risk-on environment within crypto. The investor mood indicator is outright bearish. Total market cap has contracted to $2.14 trillion. These are not conditions where liquidity is chasing beta.

Scenario B — Warsh loses the narrative. Headline inflation remains sticky above 3.5%, trimmed mean drifts up toward core rather than core drifting down toward trimmed mean, and the BofA call for three hikes starts getting priced. In this world, we get another leg down in risk assets. BTC likely tests the mid-to-low $50,000s. Altcoins get crushed harder. The stablecoin market cap of $286 billion and 24-hour stablecoin volume surge of 34% suggest significant dry powder is sitting on the sidelines, but it stays there until macro visibility improves.

THE PRACTICAL READ ON THE NEXT 3 MONTHS

The single most important data series to watch is not any single PCE print. It is the gap between core PCE and trimmed mean PCE. If that gap narrows from 100bp toward 50bp, it means the distribution of price changes is normalizing and Warsh's framework is being vindicated. That would unlock rate cut pricing and likely catalyze a meaningful crypto recovery.

If the gap stays wide or widens further, Warsh's credibility erodes with each passing month. The FOMC's unanimous front will crack. Dissenting votes will appear. The market will start pricing a policy error, which for crypto means continued de-rating.

The stablecoin data offers one genuinely constructive signal. $286 billion in stablecoin market cap, with 24-hour volume up 34% versus the prior day, suggests the plumbing of the crypto financial system is not broken. Capital is present. It is simply choosing not to deploy into directional risk. That changes the moment the macro path becomes clearer.

BOTTOM LINE

Warsh is making a sophisticated argument that the inflation problem has been largely solved if you look through the right statistical lens. The market is not yet convinced. The next three months are a stress test of his framework. If trimmed mean PCE stays anchored in the low 2% range through the summer while the economy absorbs tariff effects and AI disinflation accelerates, the stage is set for a dovish pivot that could be the macro catalyst crypto has been waiting for. If the outlier categories prove persistent and drag trimmed mean higher, the bear case remains intact and the BofA rate hike call becomes the base case.

Position accordingly. Watch the gap, not the headline.