Senior Federal Reserve officials, including Chairman Jerome Powell, are increasingly relying on a less-well-known price gauge — “market-based” inflation — as a basis for their upbeat economic outlook. This measure excludes some service prices that are difficult to directly measure and can only be estimated, resulting in a different trend from the central bank’s preferred core inflation measure in recent months.While the core inflation measure accelerated to 2.8% in November, the market-based inflation measure has been stable around 2.4% since May. The difference has taken on added significance amid investor disappointment over the Fed’s chances of cutting interest rates by 2025 and the rise in U.S. Treasury yields.Christopher Waller, a Fed governor, laid out the rationale for focusing on the alternative measure in a speech Wednesday and expressed support for further rate cuts this year.He noted that inflation in 2024 was driven mainly by estimated price increases, such as housing services and nonmarket services, which are less reliable because they are based on estimates rather than direct observation. The Fed’s latest meeting minutes also showed several policymakers agreed with Waller.The market-based personal consumption expenditures price index excludes multiple items that statisticians must estimate, such as portfolio management and investment advisory services, insurance, because the actual prices of those services are difficult to observe.Other categories excluded include gambling, free financial services, life insurance, medical and hospital services, net motor vehicle and other transportation insurance, and net out-of-state travel.Mr. Powell and other Fed officials, such as Adriaana Kupers, have acknowledged that these “nonmarket services” are a factor in the recent rise in inflation.Anna Huang, chief U.S. economist at Bloomberg Economics, said that estimated prices do not have predictive signals, so the Fed may ignore those price changes.For example, the cost of motor vehicle and other transportation insurance rose 6.5% in the 12 months through November, reflecting catch-up inflation after car prices surged, but that increase may be overlooked by the Fed.The Bureau of Economic Analysis will release the PCE inflation data for December on Jan. 31, giving a more complete picture of the latest developments in the market-based inflation measure.