It is an honor to speak here in London to the Society of Business Economists at the suggestion of my much-admired friend, Charlie Bean at the Bank of England. Charlie is on the advisory board of the Dallas Feds Globalization and Monetary Policy Institute, and we are most grateful for his platform trading insight and, not unimportantly, his wit.

I am on my way to a conference in Paris to learn commodity trading, where I have been invited by the Banque de France to comment on a paper by another of our institutes esteemed advisors, Harvard professor Ken Rogoff. I hope my French hosts will forgive me for bringing up my favorite of all of Shakespeares histories this evening, Henry V, as I recall one of the more pleasant moments during my tenure on the Federal Open Market Committee. During our last meeting with Alan Greenspan as chairman, some of us took advantage of the moment to ham it up and work a farewell salute into our otherwise somber interventions. I chose to adapt Henrys speech to the troops at Agincourt. Affecting my best Kenneth Branagh imitation, I mangled the words of the Bard: We few, we happy few, we band of bankers, and so on, concluding with the observation that other economists now abedit was morning when we metshall think themselves accursed they were not here, and hold their policy prescriptions cheap while any speaks that served in Alan Greenspans days.

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Central banks have good reasons to subtract volatile swings in prices, but routinely excluding food and energyand only food and energyis not, in my opinion, the best we can do. For one thing, not all food and energy prices are excessively volatile. Menu prices at restaurants, for example, are sticky, making information about their Get Rich Trading E-Currency underlying trends quite valuable. Yet, a Big Mac is excluded from the usual core measurements, even though consumers eat millions of them every day. At the same time, other prices can be extremely volatile. Prices of infants’ clothing, for example, are at least as volatile as most food and energy items, but they are included in standard “ex food and energy” versions of the CPI and PCE.

A more discriminating approach might be to exclude the items with the most extreme price changes in a given period, regardless of whether those items are food, energy or anything else. This is the rationale behind trimmed mean measures of core inflation that guide our thinking. At the Dallas Fed, our measure excludes, or trims out, the extreme highs and lows of price changes each month for the PCE. A Secrets of Successful Traders trimmed mean measure is also used by the Reserve Bank of Australia.

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