Federal Reserve Chair Kevin Warsh, during his keynote address at the Jackson Hole symposium in Wyoming last week, detailed the specific data points he monitors when assessing the U.S. economy, offering a clearer view into his policy decision-making process. This set of indicators is not meant to be an exhaustive list, nor does it lead to any definitive conclusions, though Warsh has previously pledged to revisit how the central bank analyzes economic information. Nevertheless, the speech stands as his most explicit explanation to date, since taking the helm in May, of which economic signals influence his policy stance. Here is an examination of the key metrics mentioned in his address, which, taken together, largely paint a positive picture of the American economy.

Investment Momentum

Warsh characterized corporate capital expenditure as the “seeds for future economic growth,” noting that technology companies are pouring hundreds of billions of dollars into equipment and infrastructure amid the artificial intelligence boom. Nonresidential fixed investment—essentially capital spending—grew at an annualized rate of 8.5% in the second quarter. “Investment in equipment and intangible assets has grown about 9% over the past four quarters, the fastest pace since 2021,” Warsh stated. “More than half of this year’s capital expenditure growth can likely be attributed to AI-related infrastructure buildout.”

Corporate Profitability

U.S. corporate profits continue to show resilience, supported by steady consumer spending and pricing power. A measure of profit margins rose to an all-time high in the second quarter, according to data released last week by the Bureau of Economic Analysis. The share of after-tax profits relative to total value added—a proxy for corporate margins—climbed to 19.4% from 18.2%, the highest level since records began in the 1940s. Warsh noted, “Earnings growth for S&P 500 companies has exceeded 20% over the past year. Margins are quite elevated compared with historical levels, and overall equity market volatility remains low. We are closely monitoring market internals to observe how individual sectors are performing.”

Credit Conditions

The Fed Chair pointed out that credit spreads on corporate bonds and leveraged loans are near the low end of their historical ranges, signaling a high degree of investor confidence. He also highlighted the Senior Loan Officer Opinion Survey on Bank Lending Practices, which currently shows that lending standards for commercial and industrial loans are relatively loose by historical standards. “This helps explain why this type of lending has grown this year,” Warsh said. “There is little evidence that credit and lending markets are exerting a restrictive policy effect.”

Consumer Spending

Consumer spending has continued to defy expectations of many economists, who had predicted that persistent inflation would dampen demand. Although consumers appeared to pause spending in July, real consumption adjusted for inflation remained robust throughout the second quarter. Warsh specifically referenced private domestic final purchases, a demand gauge that strips out government spending, inventories, and net exports. He indicated that this measure has grown by nearly 3% this year. “This metric typically carries more economic signal than gross domestic product, and its current trajectory is equally positive,” he explained.

Labor Market

Warsh views the labor market as stable. He acknowledged that worker turnover is currently low but attributed this to the intense re-matching between employers and employees that occurred in the post-pandemic years. He also noted that slow growth in labor supply naturally constrains job growth. While some pockets of the labor market show softness, “on the whole, people who want to work are retaining their jobs or finding employment,” Warsh said. “They may indeed worry about possible shocks to the labor market down the road, but for now, I believe conditions are consistent with full employment.”

Inflation Trends

Although inflation remains well above the Fed’s 2% target, recent data has shown signs of cooling. The core personal consumption expenditures (PCE) price index, which excludes food and energy, rose 0.2% month-over-month in July and 3.3% year-over-year. Some analysts believe that, coupled with stagnating consumer spending growth in July, this gives the Fed room to maintain its current policy stance. To gain a clearer read on underlying inflation pressures, Warsh said he prefers to break down the PCE price index into its 199 individual components. “Over the past 12 months, prices for 54% of goods and services in the PCE basket have risen more than 3%,” he noted. “That share has declined notably from a post-pandemic peak of roughly 77%, but it is still well above the 32% average seen over the two decades before the pandemic.”

Inflation Expectations

The Fed Chair also made clear that he is closely watching inflation expectations, which serve as a barometer of the central bank’s ability to achieve long-term price stability and maintain policy credibility. Warsh views the fact that inflation expectations appear well-anchored after five consecutive years of above-target inflation as a highly encouraging sign, though he offered a cautionary note. “Looking at economic history, market-based inflation expectations tend to look solid and durable—until one day they suddenly aren’t,” Warsh warned. “These expectations are not easily unsettled and remain well-anchored for now, but they must be monitored with vigilance.”