Federal Reserve Chair Kevin Warsh offered a sanguine economic outlook in a closely watched speech Friday that left room for future interest rate hikes as the central bank works to tame inflation. 

“Credit and loan markets are showing few signs of policy restraint,” Warsh told the audience in Jackson Hole, Wyoming, Friday morning. “Certain sectors like housing and agriculture are showing strains, but on balance, I would be hard-pressed to describe broad financial conditions as restrictive.” 

In his first major speech at the top of the central bank, Warsh also offered his views on the impact of artificial intelligence on the economy and an argument against the forward guidance that has been part of Fed communications since the Global Financial Crisis. 

The speech solidified Warsh’s position as an inflation hawk, as the chairman promised again to deliver price stability. For commercial real estate owners and investors, it is the latest and clearest signal that the Fed isn’t inching toward rate relief. 

Warsh said the central bank had done a good job on the employment side of its dual mandate but still had work to do to bring inflation down to the Fed’s longtime 2% target rate. 

The U.S. lost 23,000 jobs in July, well off economists' forecasts of roughly 83,000 new jobs, but the unemployment rate ticked down slightly to 4.1%. Job growth has been uneven in the last two years, with job losses in seven of the last 20 months, according to an NBC News analysis. 

Warsh said that labor markets always have areas of concern, with recent graduates facing hurdles today, but the current market remains robust.

“They may well be concerned about future labor disruptions,” he said. “But as of now, I believe the labor markets are broadly consistent with full employment.”

Warsh, 56, outlined the principles guiding his policymaking inside the Fed, including a view that short-term interest rates are the central bank’s “predominant tool” to achieving its dual mandate. 

He complained that “yesterday’s news has a way of getting mistaken for what's happening right now,” and he pledged to lead a central bank that was quieter and more purposeful in its communications. 

The comments were in line with criticisms Warsh, who worked at the Fed during the GFC, had leveled against the central bank under then-Chair Jerome Powell. Warsh previously called for structural reforms inside the central bank, and he launched five task forces after he took over that are reviewing practically every aspect of Fed operations. 

Warsh has been critical of the forward guidance offered after each Federal Open Market Committee meeting, arguing that the central bank risked tipping investor decision-making by telegraphing its moves ahead of time and before financial conditions supported them. 

“We should not indulge a regime in which market participants are looking primarily to the Fed for their next trade,” Warsh said Friday. “If markets rely materially on the Fed's guidance and the Fed relies on market prices, we're more likely to be blinded to new developments.”

On price stability, the other side of the Fed’s dual mandate, Warsh conceded that “the numbers are more concerning,” but he reiterated that he was committed to pulling inflation down.

“Inflation is running above our 2% target, so the Fed's predominant focus right now should be on prices,” he said. 

He described the economy as at a “hinge point in history” as artificial intelligence redefines the typical roads to economic growth. The technology remains nascent, and a host of unanswered questions will define how AI broadly remakes the economy, he said.

Warsh raised questions about whether AI’s adoption would result in a significant and sustained boost to productivity, how much competition would exist between leading AI models, and where capital would settle between materials providers, chipmakers, AI-model operators, energy producers and cloud infrastructure providers. 

The chairman said businesses were rapidly increasing their capital expenditures while profit margins were at historical highs. Investors are looking for growth in both earnings and outside investment, and credit spreads on corporate bond issuance remain strong. 

“I'm impressed by the overall performance of the economy, which appears to have strengthened,” Warsh said.