Will the Fed’s lower bound reach 0.5% or lower before 2027?

Prediction markets put the probability at 10%: Will the Fed’s lower bound reach 0.5% or lower before 2027. Currently, markets see this as unlikely (10% YES). BNP Paribas resets Fed rate-cut outlook for 2026 - TheStreet.

What’s Happening

Interest-rate futures repriced sharply lower on Friday, May 15, 2026, with bond traders increasingly convinced that persistent inflation will force the U.S. Federal Reserve to raise rates rather than cut them. The probability that the Fed's benchmark rate would be 25 basis points higher by the January 2027 FOMC meeting climbed to roughly 60%, while odds of a hike at year-end also firmed. The federal funds rate has been held in a 3.50%–3.75% range since December 2025, leaving the lower bound a full 300 basis points above the 0.50% threshold in question. For the fed's lower bound reach 0.5% or lower outcome to resolve YES, the FOMC would need to deliver at least twelve quarter-point cuts before December 31, 2026. [Kitco, May 15]

The hawkish repricing reflects renewed inflation pressure from Strait of Hormuz shipping disruptions, which have lifted oil and gasoline prices, alongside positive nonfarm payroll prints in March and April 2026. New Fed Chair Kevin Warsh, appointed by President Donald Trump and previously seen as dovish-leaning, faces mounting pressure to pivot toward tightening despite White House preference for lower borrowing costs. A Reuters poll published May 19 found a majority of economists now expect the Fed to hold through year-end, pushing previously forecast cuts into 2027 on the view that war-driven inflation is transitory. Less than half of polled economists see the funds rate falling at all in 2026. [USA Today, May 18]

Historical precedent underscores how far the policy path would need to shift for the fed's lower bound reach 0.5% or lower scenario to materialize within the timeframe. The last time the lower bound sat at 0.25% was during the March 2020 emergency response, requiring 150 basis points of cuts in a single month under pandemic conditions. BNP Paribas reset its 2026 outlook on May 17, joining Wall Street strategists including Ed Yardeni who now expect Warsh to ultimately join the tightening camp rather than ease. Treasury yields remain elevated, with the March 18 FOMC median projection still implying a higher terminal rate. Reaching the fed's lower bound reach 0.5% or lower before 2027 would require a sharp recessionary shock displacing the current inflation-driven hawkish bias. [MarketWatch, May 18]

Traded on Polymarket — $101K Volume

Polymarket prices this at 5c YES with $101K in volume. Moderate liquidity — use limit orders for positions above $1K to avoid moving the price.