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, according to the central bank's latest communications. The shift matters because it follows more than five years in which the Fed repeatedly fell short of its 2% goal, a stretch that eroded confidence in its forecasts.

The market's change of heart centers on credibility. If investors believe the Fed will hold rates steady long enough to finish the job, longer-term borrowing costs and inflation expectations can adjust without aggressive tightening. That, in turn, affects how equities, bonds and the dollar are priced. The Fed's challenge is that its projection depends on inflation cooling largely on its own, with policy doing relatively little additional work.

What to watch: incoming inflation and employment data, the Fed's updated rate projections, and whether financial conditions stay tight enough to support the disinflation path. If price pressures prove sticky, the "slightly higher rates" assumption could be tested — and markets may reprice that risk quickly.