📊 Trimmed Mean PCE Inflation Rate (Dallas Fed)

To: Institutional Clients

From: Global Economics Strategy Team

Date: April 2026

Subject: Trimmed Mean PCE Analysis: Disinflationary Trend Faces Near-Term Volatility

1. Executive Summary

The latest Dallas Fed Trimmed Mean PCE data suggests a persistent, albeit non-linear, disinflationary trend in the underlying price level. The 12-month trimmed mean has declined steadily from a peak of 2.80% in August 2025 to 2.36% in March 2026, signaling that the broad-based inflationary impulse is receding toward the Fed's target.

However, the 1-month print reveals significant short-term volatility, with the March 2026 reading spiking to 2.88%. This divergence between the cooling annual trend and the erratic monthly prints suggests that while the "macro" inflation story is one of deceleration, "micro" price shocks remain prevalent, potentially complicating the Federal Reserve's path toward a neutral rate.

2. Five Main Views

• Sustained Annual Descent: The 12-month trimmed mean has fallen 44bps from its August 2025 high (2.80%) to the current 2.36%, confirming a clear downward trajectory in core price pressures.
• Monthly Volatility Spike: The 1-month rate jumped from 1.97% in February to 2.88% in March, a significant MoM acceleration that offsets recent gains in disinflation.
• Mean Reversion in Progress: With a 10-year Z-score of -0.24$\sigma$ for the 12-month series, inflation is currently trading very close to its long-term historical average (55.8th percentile), suggesting the "inflation shock" era has effectively ended.
• Persistence of Noise: The 1-month series remains in the 70th percentile (Z-score +0.20$\sigma$), indicating that monthly price swings remain elevated relative to the 10-year norm.
• Narrowing Gap to Target: The 12-month trend is now within 36bps of the 2.0% target, shifting the policy conversation from "how to stop inflation" to "how to manage the final mile."

3. Macro Characterization

(i) Growth: While PCE is a price measure, the steady decline in the 12-month trimmed mean suggests a cooling of aggregate demand and a normalization of supply chains, consistent with a growth profile that is stabilizing rather than overheating.

(ii) Labor Market: The lack of a sustained "inflation floor" in the trimmed mean suggests that wage-push inflation is no longer the primary driver of prices, implying a labor market that is returning to equilibrium without triggering a wage-price spiral.

(iii) Inflation: We characterize current inflation as "trend-stable but volatile." The long-term trajectory is decisively downward, but the March 1-month spike to 2.88% indicates that idiosyncratic shocks still possess the power to create temporary headline noise.

4. Cyclical Alignment

Based on the provided Z-scores, the current regime is classified as a Mid-Cycle Pause.

The 12-month Z-score of -0.24$\sigma$ is well within the $|2.0|$ threshold, ruling out a regime-defining event or structural shift. The data does not support a "late-cycle overheating" thesis, as the annual rate is trending down from 2.80% to 2.36%. Instead, the alignment of the 12-month rate near the 55th percentile suggests a return to a historical baseline, characteristic of a mid-cycle phase where the economy is absorbing previous shocks and stabilizing.

5. Policy Outlook

Forecast: Hold / Cautious Ease

The balance of risks is currently skewed toward a "wait-and-see" approach. While the 12-month trend (2.36%) provides the Fed with the confidence to consider further easing, the sharp jump in the 1-month print (2.88%) will likely trigger a cautionary response.

We expect the Fed to hold rates steady at the next meeting to ensure the March spike is a transient outlier rather than a reversal of the trend. If the 1-month print moderates in April, we forecast a 25bps cut in the following window, as the 12-month trajectory remains the primary anchor for policy decisions.