The Fed Has Missed Its Inflation Target on Ten Different Measures

The Atlanta Fed tracks various inflation targets. Let’s have a look.

Please consider the Federal Reserve Bank of Atlanta Underlying Inflation Dashboard

Monetary policymakers have historically used or monitored various measures of underlying inflation to gain context about longer-term trends. The Underlying Inflation Dashboard is a tool that provides information about these measures. The user can get a broader characterization of retail price pressures from this dashboard than by monitoring movements in core PCE alone.

Some of those measures are nonsensical, especially mean-trimmed measures that throw as much as 60 percent of the data away. But even that’s not helping now.

Year-Over Year Numbers

• Core CPI: 2.6
• FRB Cleveland Median CPI: 3.1
• FRB Cleveland 16% Trimmed-Mean CPI: 3.0
• Atlanta Fed Sticky CPI: 3.1
• Core PCE: 2.8
• Market-Based Core PCE: 2.6
• FRB Dallas Trimmed-Mean CPI: 2.7
• FRB San Francisco Cyclical Core PCE Inflation: 3.6
• Cyclically Sensitive Inflation (Stock and Watson (2019)): 2.9
• CPI: 2.7 (added to the dashboard list)

The Fed’s target is 2.0 percent. The best measure in the bunch is 2.6 percent.

Key CPI Issues

While everyone rails against BLS data collection methods and procedures (with good cause), that is not the fundamental problem.

Rather, the fundamental problem is the makeup of the CPI and PCE itself.

The CPI consists of items directly paid for by consumers. The PCE (the Fed’s preferred measure of inflation) contains items indirectly paid for by consumers, notable Medicare and corporate health insurance.

They are both flawed because neither includes home owners’ insurance or property taxes.

I expect big jumps in medical care services starting next month when health care premiums jump.

CPI Up 0.3 Percent in December, Price of Food Jumps, Gasoline Lower

On January 13, I noted CPI Up 0.3 Percent in December, Price of Food Jumps, Gasoline Lower

Except for declines in gasoline and used cars, this was not a good report.

Homeowners’ insurance, and property taxes, and food are three reasons the CPI is garbage.

Better collection mechanisms will not and cannot fix this fundamental problem.

Worse yet, the Fed, Trump, and the overwhelming majority of economists do no even understand the problem.

But hooray! The year-over-year CPI was tame. I made a note.

Economists need to make a note that wages are not keeping up with inflation because the measures are ridiculous.

Note the BLS food weights for home vs away are reversed from where people actually spend their money.

For more details, please consider Where Do You Spend Money on Food? How Screwed Up Are the BLS Weights?

Does the BLS match your budget?

The Key Mistake

Finally, please consider Is Homeowners Insurance Understated in the CPI? Shop Around! This is the key BLS mistake.

Our Insurance went up by $2,000. Then another $2,000. Here’s our story.

Looking Ahead

I expect big jumps in medical care services.

There are 24 million people on ACA, and a majority of them are in Republican states.

For Obamacare discussion, please see my December 7, 2025 post How Much Will 4.5 Million Florida Residents Pay for Obamacare in 2026?

Here’s some interesting health care math on Obamacare in Florida.

What About Overall Health Care Costs?

Good question. I addressed that issue on December 8, 2025 in Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible

Let’s discuss 2026 health care premiums and what they mean to the Fed’s preferred measure of inflation.

I project increases in health care will add 1.4 to 1.6 percentage points to headline PCE inflation before food, energy, shelter, or tariffs move prices at all.

And it’s the PCE, not the CPI that will have the Fed’s attention.