Waller’s Last War: Hiking as Energy Prices Collapse Governor Christopher Waller’s speech is a masterclass in fighting the last war while the current one ends. He ignores the Dallas Fed’s trimmed-mean PCE, a superior gauge of underlying inflation. Crude oil and wholesale gasoline prices are in freefall. WTI has dropped roughly 20 percent from late-October peaks near $104, and RBOB gasoline futures have collapsed more than 20 percent in weeks. Retail gasoline just slipped below $4 a gallon for the first time since midsummer. These are large, rapid supply-side improvements. Energy was the principal driver of the inflation Waller cites; its reversal is already transmitting into lower prices and will ease pressure across the economy. Waller dwells on September’s headline PCE near 3.6–3.7 percent and core of 3.1 percent, fretting over “breadth.” He is silent on the trimmed-mean PCE, which stood at just 2.3 percent year-over-year in September, near the Fed’s target. By stripping extreme moves, the trimmed mean reveals a far milder underlying trend. Treating lagged, energy-distorted readings as decisive while discarding the cleaner measure is selective analysis, not careful policy. Its incompetence. The headline inflation impulse from high energy prices is dissipating in real time. Hiking into that dissipation,pre-committing to at least 25 basis points, or floating 50 if October CPI is merely steady, risks converting a temporary supply shock into an unnecessary slowdown. Monetary policy operates with long lags; tightening further as the dominant inflationary impulse reverses is pro-cyclical error. Making policy forecast on one CPI reading, not PCE, is a classic example of the recklessness and arrogance that exists engrained in the technocratic elite. Why does the Fed ignore the data and the theory? The Economic Outlook and Some Thoughts on Labor Market Dynamism via @FederalReserve