Will the Fed’s lower bound reach 0.25% or lower before 2027?

Prediction markets put the probability at 7%: Will the Fed’s lower bound reach 0.25% or lower before 2027. Currently, markets see this as unlikely (7% YES). BNP Paribas resets Fed rate-cut outlook for 2026 - TheStreet.

What’s Happening

Interest-rate futures repriced sharply lower on May 15, 2026, as bond investors moved to discount the probability of a Federal Reserve rate hike by early 2027. Implied odds of a 25 basis-point increase by the January FOMC meeting climbed to roughly 60%, a reversal from earlier easing expectations held since the central bank last cut in late 2025. The federal funds target range has remained at 3.50%–3.75% since December 2025, leaving the lower bound more than 325 basis points above the 0.25% threshold. For the Fed's lower bound reach 0.25% or lower before 2027, the FOMC would need to deliver roughly 13 consecutive 25 bp cuts across an estimated five remaining meetings — a pace last seen during the March 2020 pandemic emergency response. [Kitco, May 15]

A Reuters poll of economists published May 19 found that less than half of respondents expect the federal funds rate to fall this year, with most pushing rate-cut calls into 2027. The shift reflects persistent war-driven inflation tied to Strait of Hormuz shipping disruptions, which have lifted oil, gasoline and freight costs through March and April. BNP Paribas reset its Fed outlook on May 17, dropping its previously dovish 2026 forecast. New Fed Chair Kevin Warsh and President Donald Trump have publicly favored lower borrowing costs, but March and April nonfarm payrolls printed positive, narrowing the case for emergency easing. [Kitco, May 19]

Wall Street strategist Ed Yardeni argued on May 18 that Chair Warsh will likely have to pivot toward the tightening camp before any sustained easing cycle can begin, warning that Treasury yields have further to climb before peaking. Historically, the Fed's lower bound reach 0.25% or lower has only occurred twice in modern policy — December 2008 through 2015, and March 2020 through 2022 — each tied to systemic financial or pandemic shock. With core CPI still elevated and the FOMC's March median projection showing no cuts before late 2026, the path to a zero-bound regime within roughly 32 weeks would require a sharp recessionary break in labor and consumption data. [MarketWatch, May 18]

Traded on Polymarket — $124K Volume

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