During his April Senate testimony, Warsh stated that the Fed's current inflation indicators are merely "rough estimates" of actual price pressures, and he prefers using the "trimmed mean PCE" published monthly by the Dallas Federal Reserve Bank.

This concept will change how you interpret inflation going forward.

Standard PCE averages the price changes of all goods and services purchased by consumers. This means that even if prices in other parts of the economy are normal, a one-time oil price spike will be directly reflected in the overall PCE data.

Core PCE improves one step by excluding food and energy prices, but it still absorbs all other downstream price surges caused by rising energy costs.

Under the "trimmed mean PCE" inflation indicator that Warsh favors, the answer is quite different.

A few hours after the PCE data release, the Dallas Fed published its May trimmed mean data: annualized 2.42%, slightly above April's 2.35%.

This confirms Warsh's view that after stripping out extreme price outliers, the underlying inflation trend is close to the Fed's 2% target and remains relatively stable.

The conclusion is that inflation is not a major problem.

But financial media continue to hype that Warsh will remain hawkish, possibly raising interest rates rather than cutting them. If you can keep up with Warsh's thinking, your interpretation of Fed policy will be more thorough than that of most investors.