Warsh's Gauge Sits Below Target as July Inflation Rates Surprise

The July Personal Consumption Expenditures (PCE) price index report showed inflation rates came in hotter than expected, but the gauge Fed Chair Kevin Warsh watches is running below his target.

Headline PCE rose 0.2% in July, holding the 12-month rate at 3.7%, while core PCE also rose 0.2% on the month, but remained steady at 3.3%. Both readings still sit above the Fed's 2% target.

Warsh prefers the trimmed mean PCE, which strips out extreme price movers and shows a more persistent inflation rate. This gauge came in at 2.3%, nearly a full point below core PCE and just above the Fed's 2% target.