Warsh’s Fed shows it’s serious about taming inflation. Why Wall Street now believes it.

Federal Reserve officials now project that inflation can return to the 2% target by 2029 with only modestly higher U.S. interest rates — a shift from more than five years in which that goal proved elusive. The signal matters because markets price expectations as much as policy itself: if investors believe the central bank will hold the line, inflation expectations can anchor without aggressive rate increases.

Wall Street's growing conviction reflects that credibility effect. When a central bank is seen as serious about taming inflation, the perceived cost of disinflation falls, because businesses and households adjust behavior in advance. That can mean less upward pressure on long-term yields and a smoother path for rate-sensitive sectors.

What to watch: whether incoming inflation readings track toward the projected path, and whether policymakers sustain their stance if growth slows. The gap between forecast and outcome — not the forecast alone — will determine whether this credibility holds.