By Nick Timiraos

Federal Reserve Chairman Kevin Warsh declined to say Wednesday whether the central bank needed to consider a rate increase later this month but said his first weeks in the job have seen risks of higher inflation recede. That was evidence, he said, that markets have already grasped his hard line on prices.

"Expectations of future inflation [over the last four weeks] have come down. Inflation risks have come down," Warsh said at a conference in Portugal alongside foreign counterparts. Anyone expecting the Fed would tolerate inflation running above its 2% goal "would be disappointed," he added.

Warsh demurred when pressed on the tactics he might deploy to deliver on his pledge to restore price stability, including the prospect of a rate increase at the Fed's meeting later this month. He said only that he wanted a "good family fight" among colleagues before they decide.

Asked separately whether the artificial-intelligence boom could stoke broader inflationary pressures, he sidestepped again: "I'm not going to make a judgment now."

Warsh's reticence is deliberate, and it has drawn grumbling from former colleagues and central-bank watchers. His push to pare back how the Fed narrates its outlook for jobs, growth and inflation — and how it weighs the risks around it — has left markets with more uncertainty about the central bank's tactics.

Warsh brushed aside complaints Wednesday that investors need a clearer sense of how the Fed would adjust as the outlook changes. He pointed to falling interest-rate volatility, lower Treasury yields and expectations that inflation would decline over the coming year or two as early evidence his strategy is succeeding.

"I hear this as if people don't understand," he said. "I think they actually understand quite well."

The outlook for inflation has improved in recent weeks in part because a deal meant to end the war in Iran has pushed energy prices down.

The Fed has held its benchmark rate in a range of 3.5% to 3.75% all year after making quarter-point cuts at each of its final three meetings of 2025. Officials agreed to those reductions amid worries that a softening labor market could need more support and believing policy was restrictive enough to keep lowering inflation.

The outlook has since shifted. Job growth, which stalled at the end of last year, has firmed. The U.S. economy has motored along, powered by the AI build-out and a stock-market rally lifting spending among higher-income households.

Together these raise the prospect that even if overall inflation eases in the months ahead, robust growth will keep underlying price pressures stuck above the Fed's 2% target. Several officials have urged the central bank to weigh rate increases this year. A strong June jobs report on Thursday and a firmer reading on inflation later this month could embolden some to press for a hike.

Earlier Wednesday, Kevin Hassett, a senior White House economic adviser, said in an interview on Fox Business that it would be "a macroeconomic mistake" for the Fed to raise rates. Hassett said he believed Warsh shared his view that AI-fueled economic growth wouldn't be inflationary and wouldn't require higher interest rates.

Warsh wasn't asked about Hassett's remarks. But pressed on whether the AI boom was stoking inflation, he offered an answer that pointed the same direction. Warsh emphasized the longer horizon, when AI could expand the economy's capacity to produce goods and services and ease price pressures. "That has huge implications" for the Fed if businesses expand that capacity, he said.

Separately, Warsh said the Fed had been and would remain independent from the executive branch. "You're going to see no changes on that," he said. The Supreme Court's decision on Monday allowing Fed governor Lisa Cook to keep her job reaffirmed how the central bank earns its independence by meeting its objectives, Warsh said.

"We are calling balls and strikes as best we can," he said. If the Fed delivers on low and stable inflation, he said, "we don't have to worry about politics. We don't have to worry about judicial intervention."

Of the 19 officials at last month's meeting, the 18 who submitted projections split evenly on the path ahead. Nine saw higher rates as warranted by year-end, eight favored holding, and one penciled in a cut. (Warsh, in keeping with his skepticism of the projections, didn't submit one.)

Together with Warsh's blunt pledge last month to restore price stability, the more hawkish-than-expected projections led markets to anticipate a rate increase later this year, though interest-rate futures markets still lean toward a hold at the July 28-29 meeting.

In the Fox Business interview, Hassett delivered an implicit warning about the coming decision. Pointing to Jerome Powell, who stayed on as a Fed governor after his term as chair ended in May, Hassett said he was concerned that "a majority of people over at the Fed" might vote for higher rates "not necessarily...because they're patriotic, but rather because they want to get Trump."

Hassett exempted Warsh from that critique, portraying him as saddled with an unruly committee. "It's not going to be Kevin Warsh's fault, but he's got to herd some cats over there, and it's a really difficult job," Hassett said.

The officials who have argued for higher rates have framed their case in economic terms — that a resilient economy and sticky inflation, not hostility to the president, warrant tighter policy.

Some see an economy at risk of overheating, with demand outrunning what the Fed's current rate setting can restrain. Others think policy was never as restrictive as assumed and that, by standing still as inflation has risen this year, the Fed has effectively been easing.

Write to Nick Timiraos at Nick.Timiraos@wsj.com