Jerome Powell laid out a doctrine of basing monetary policy as much on how the economy performs in reality as on the prescriptions of academic models as his Federal Reserve tries to extend a nearly decade-long expansion.

In his first speech as Fed chief at an annual conference in Jackson Hole, Wyoming, Powell defended his gradualist approach and, in the process, hardened expectations for a September interest-rate increase. In addition, he stressed that estimates of how the economy works—like those followed by Ph.D. economists on the Fed staff—were at best “hazy” navigational guides.

As a result, they often need to be tested by close observation of real economic data. The approach means that because policymakers often operate amid uncertainty, they need to feel their way rather than rush to tighten because of what models say. The Fed's job is set to become more complicated as its benchmark rate turns restrictive and the expansion ages.