When President Donald Trump nominated Kevin Warsh to run the Federal Reserve, Wall Street pulled out the old file.
As a Fed governor through the 2008 crisis, Warsh had built a reputation as an inflation hawk.
Then the file went stale.
Trump wanted cheaper money. Warsh, through his first months in the chair, gave traders little to work with, and his July press conference left the market unsure which inflation yardstick he was even steering by.
Then one speech completely shifted the script. Warsh used his Jackson Hole keynote last Friday, his 100th day as chairman, to say the thing the market had spent the summer waiting to hear.
The Fed is willing to hike rates as inflation remains far from the target.
Warsh Just Made The Fed Rate Hike Trade Real
Warsh reaffirmed that 2% PCE inflation is the Fed's "firm, fixed target" and said inflation remains too high.
He also pushed back against the idea that monetary policy is already restrictive.
"On balance, I would be hard pressed to describe broad financial conditions as restrictive," Warsh said.
For a central banker, that is close to conceding that policy is not tight enough.
If financial conditions are not sufficiently tight, the Fed has room to raise rates without believing it is deliberately crushing economic activity.
Odds of a September rate hike jumped to as high as 66% on Monday, according to the CME FedWatch tool.
A second hike is now fully priced in by January 2027. A third hike in 2027 carries a 35% chance.
BofA Securities economist Aditya Bhave said Warsh's speech was firmly hawkish and that the bank, which has long called for a September increase, came away more confident.
He added a warning: "The onus is now on him to deliver a hike in September," unless incoming jobs and inflation data are very soft.
That creates a credibility test.
Wall Street Is Pricing A Different Fed
The reaction in interest-rate markets was immediate following Warsh's Jackson Hole speech.
Short-term yields rose faster because investors expect tighter Fed policy, while long-term yields barely moved.
That produced what bond traders call a flattening of the yield curve.
Two-year Treasury yields rose as much as nine basis points on the speech, while the 30-year was roughly flat and the dollar gained between 0.2% and 0.6% against the other Group of 10 currencies. A basis point is one hundredth of a percentage point.
On Monday, the two-year yielded 4.34%, nearly 60 basis points above the top of the Fed's current 3.50% to 3.75% range. The 30-year sat at 5.24%.
The S&P 500 - as tracked by the SPDR S&P 500 ETF Trust (NYSE: SPY) - closed Friday at 7,711.76, about 1.3% below the record it set on Aug. 13.
That leaves the data to speak for Warsh. The August jobs report and the August inflation readings both land before the Sept. 15-16 meeting.
Two soft numbers would give him room to wait.
Anything else, and the market has already written his decision for him.