📊 Trimmed Mean PCE Inflation Rate (Dallas Fed)

To: Institutional Clients

From: Global Economics Strategy Team

Date: March 2026

Subject: Trimmed Mean PCE Analysis: Disinflationary Momentum Accelerates

1. Executive Summary

The latest Dallas Fed Trimmed Mean PCE data confirms a sustained disinflationary trajectory, with the 12-month rate hitting a series low of 2.33% in February 2026. After a period of volatility and a mid-2025 peak, the data suggests that the "sticky" components of inflation are finally yielding to restrictive monetary policy, bringing the measure significantly closer to the Federal Reserve's 2% target.

The sharp deceleration in the 1-month print for February (1.82%) following a January spike (2.71%) indicates that recent inflationary noise is transitory. The overarching trend is one of cooling, providing the Federal Open Market Committee (FOMC) with the necessary confidence to pivot toward a more accommodative stance to protect growth.

2. Five Main Views

• Consistent Downward Trend: The 12-month trimmed mean has declined 47 basis points (bps) from its August 2025 peak of 2.80% to the current 2.33%, signaling a robust disinflationary trend.
• January Volatility Reversed: The 1-month inflation spike in January 2026 (2.71%) was a temporary outlier, swiftly corrected by February’s print of 1.82%, suggesting a return to a lower monthly run-rate.
• Target Convergence: The gap between the trimmed mean PCE and the Fed's 2% target has narrowed to just 33 bps, down from 80 bps in February 2025.
• Noise Reduction: By trimming the tails of the distribution, this data confirms that the decline is not driven by a few volatile categories (like energy or food) but is broad-based across the consumer basket.
• Momentum Shift: The sequential decline in the 12-month rate over the last four months (2.55% $\rightarrow$ 2.51% $\rightarrow$ 2.44% $\rightarrow$ 2.42% $\rightarrow$ 2.33%) suggests that disinflation is accelerating rather than plateauing.

3. Macro Characterization

(i) Growth: While PCE is a price measure, the consistent decline in the trimmed mean suggests a cooling of aggregate demand. The transition from a 2.80% peak in August 2025 to 2.33% today implies that the economy is moving out of an overheating phase and into a period of moderate, sustainable growth.

(ii) Labor Market: The trimmed mean PCE is a proxy for "core-of-core" inflation, which is heavily influenced by service-sector wages. The steady decline in this metric suggests that nominal wage growth is likely moderating, reducing the risk of a wage-price spiral and easing the pressure on corporate margins.

(iii) Inflation: Inflation is in a clear state of retreat. The 12-month rate has fallen from 2.73% in February 2025 to 2.33% in February 2026. The monthly volatility—ranging from a high of 3.59% (June 2025) to a low of 1.57% (October 2025)—has smoothed out, with the most recent print (1.82%) sitting comfortably below the annualized target.

4. Policy Outlook

Given that the 12-month trimmed mean PCE is now at 2.33% and monthly momentum has cooled sharply to 1.82%, the balance of risks has shifted from "inflation upside" to "growth downside." The Fed no longer needs to maintain a maximum restrictive stance to fight stubborn prices.

Forecast: We expect a 25 bps rate cut at the next FOMC meeting. The data provides sufficient cover for the Fed to begin normalizing rates to prevent an over-tightening cycle. We anticipate a series of quarterly cuts through the remainder of 2026 to bring the real policy rate down as inflation converges toward 2.0%.