📊 Trimmed Mean PCE Inflation Rate (Dallas Fed)

To: Institutional Clients

From: Economics Strategy Team

Date: June 2026

Subject: Trimmed Mean PCE Analysis: Inflation Plateau and Momentum Risks

1. Executive Summary

The latest Trimmed Mean PCE data suggests that inflation has entered a period of stubborn stabilization, effectively plateauing above the Federal Reserve's 2% target. While the 12-month trend has retreated significantly from 2025 peaks, the recent print indicates a loss of downward momentum, with the 12-month rate ticking up to 2.41% in May 2026.

The overarching signal is one of "stickiness." The convergence of the 12-month Z-score toward the mean, coupled with an accelerating 1-month momentum print, suggests that the "last mile" of disinflation is proving difficult. We view this as a signal for the Fed to maintain a restrictive stance, as the data lacks the definitive downward trajectory required for aggressive easing.

2. Five Main Views

• Trend Reversal: The 12-month trimmed mean PCE has bottomed out at 2.34% (Feb/Apr 2026) and has now reversed course, rising 7bps to 2.41% in May.
• Accelerating Monthly Momentum: The 1-month print shows a sharp acceleration, rising from 2.43% in April to 2.78% in May (+35bps MoM), indicating renewed short-term price pressure.
• Regression to Mean: With a 10-year Z-score of -0.20$\sigma$ and a 56.7th percentile ranking, the 12-month inflation rate is now almost exactly aligned with its long-term historical average.
• Persistent Volatility: The 1-month series remains erratic, swinging between 1.97% (Feb) and 2.94% (Mar), suggesting that while the trend is stable, monthly noise remains high.
• Absence of Extreme Shocks: Neither the 12-month nor 1-month Z-scores exceed the $\pm 2.0\sigma$ threshold, confirming that we are not experiencing a regime-defining shock, but rather a period of consolidation.

3. Macro Characterization

(i) Growth: The stability of the trimmed mean PCE, which removes extreme outliers, suggests a baseline of aggregate demand that remains resilient. The lack of a collapse in inflation prints implies that economic activity is likely sustaining itself without a significant contractionary shock.

(ii) Labor Market: While direct employment data is not provided, the "stickiness" of the trimmed mean inflation—particularly the bounce back to 2.41%—is typically symptomatic of a tight labor market where wage-push inflation prevents a clean descent to the 2% target.

(iii) Inflation: We characterize current inflation as "plateaued." The transition from a clear downtrend (Aug '25 at 2.80% $\rightarrow$ Apr '26 at 2.34%) to a slight uptick (May '26 at 2.41%) indicates that the primary disinflationary forces have been exhausted.

4. Cyclical Alignment

Based on the provided metrics, the current regime is classified as a "mid-cycle pause."

The 12-month Z-score of -0.20$\sigma$ and the 1-month Z-score of +0.11$\sigma$ indicate that inflation is neither overheating (which would require a high positive Z-score indicative of late-cycle) nor crashing (which would require a Z-score below -2.0$\sigma$). The data describes a state of equilibrium where inflation is hovering near its