In his speech, Warsh outlined some key principles he thinks should guide how the Fed sets policy. Here's the list:

-- Good data. The Fed shouldn't rely on stale or backward-looking data to set forward-looking policy, Warsh said. Policymakers also should keep their eyes on overall trends, not isolated data points.

-- Balancing demand and supply requires some guesswork. The Fed's job is to ensure that the aggregate demand side of the economy is "broadly consistent" with aggregate supply, Warsh said. But central bankers only observe demand activity - thus, gauging the balance between aggregate supply and demand is by nature "imprecise."

-- The inflation goal is 2%. And it's "a firm, fixed target," Warsh said.

-- But maximum employment matters too. The two sides of the Fed's dual mandate are not at odds with each other, Warsh said: "After all, high inflation itself is very harmful to economic prosperity."

-- The Fed should be focused on setting rates. Setting short-term interest rates is the Fed's primary tool to achieve the dual mandate, Warsh said. "Unconventional policies" may be necessary during crises, he added, but "should otherwise be used sparingly, if at all."

-- The money supply matters. When it comes to controlling inflation, central bankers still need to consider the amount of money circulation throughout the economy, Warsh said.

-- A quieter Fed is a better Fed. The central bank should be evaluated on results, Warsh said - not what the chairman or other policymakers have to say.