The Federal Reserve Board published a FEDS Note proposing an ensemble-averaging approach to estimating “underlying inflation”, defined as the inflation rate expected to prevail absent resource slack, supply shocks, and other temporary disturbances. Using an equal-weighted average across multiple models, the note estimates that underlying inflation rose in the post-pandemic period but remained stable at 2.1 percent through 2024:Q4, near the Federal Reserve’s two percent inflation objective. The ensemble combines seven underlying inflation estimates drawn from different models and information sets: two rolling means of quarterly core PCE inflation over 15 and 25 years, three time-varying parameter unobserved-components models that jointly use realized inflation and long-run inflation expectations (from the Michigan survey, an index of common inflation expectations, and TIPS-based inflation compensation), a time-varying parameter VAR incorporating core PCE inflation, relative import and energy price inflation, and the unemployment gap, and a small semi-structural unobserved-components model that estimates underlying inflation alongside trends in output and unemployment. The authors adopt equal weighting rather than forecast-performance weights, citing instability and additional estimation error from time-varying weighting schemes. On uncertainty, an approximate 70 percent confidence interval averaged across models was relatively moderate before the pandemic, spanning 1.6 to 2.0 percent in 2015–2019. The interval widened during 2021–2024 (from roughly 0.5 to 0.75 percentage point), with model dispersion becoming more skewed to the upside in 2022 when the maximum individual estimate reached 2.6 percent, before risks narrowed and became more balanced after end-2022; by 2024:Q4 the interquartile range was 2.0 to 2.15 percent and individual estimates clustered between 2.0 and 2.2 percent.

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