Will the Fed’s lower bound reach 3.25% or lower before 2027?

Prediction markets put the probability at 47%: Will the Fed’s lower bound reach 3.25% or lower before 2027. Currently, markets are divided (47% YES, 53% NO).

What’s Happening

As of May 5, 2026, prediction market data indicates a 47% probability that the Federal Reserve’s lower bound will reach 3.25% or lower before 2027, against a 53% probability that it will not. This split reflects deep uncertainty following the Fed’s decision to hold the federal funds rate steady for a third consecutive meeting on April 29, 2026. The central bank’s forward guidance, which retained the phrase “additional adjustments to the target range,” was interpreted by some as a signal that only rate cuts remain on the table. However, Minneapolis Fed President Neel Kashkari dissented from the statement, arguing that the language inappropriately pre-committed the FOMC to easing, given persistent inflation risks. The current rate stands at 4.50%, meaning a move to 3.25% or lower would require at least 125 basis points of cuts over the next eight months — a pace historically associated with recessionary conditions. [CNN, May 1] [Minneapolis Fed, May 1]

The probability that the Fed’s lower bound will reach 3.25% or lower has been volatile, swinging from a high of 62% in early April to its current 47%, as markets recalibrate expectations amid conflicting data. A May 5 report from Business Insider noted that the probability of a rate hike within the next 12 months has risen sharply, driven by fears of sticky inflation in the services sector and rising commodity prices linked to the Middle East conflict. The April CPI reading, due May 13, will be a critical catalyst: if core inflation prints above 3.0% year-over-year, the case for cuts weakens significantly. Historically, the last time the Fed cut rates to 3.25% was during the 2019 “mid-cycle adjustment,” which was followed by a 50-basis-point emergency cut in March 2020. The current yield curve remains inverted, with the 2-year Treasury yield at 4.72% versus the 10-year at 4.55%, a classic recession signal that typically precedes aggressive easing. [Business Insider, May 5] [Kitco, May 4]

The outlook for the Fed’s lower bound reaching 3.25% or lower is further complicated by leadership transition risk. Kevin Warsh, expected to succeed Jerome Powell as Fed chair when Powell’s term ends in February 2027, has publicly favored a more hawkish stance on inflation, according to a May 2 CNBC report. Powell has stated he will remain as a governor, but the shift in leadership could alter the FOMC’s reaction function. New York Fed President John Williams said on May 4 that policy is “well positioned” for elevated uncertainty, but acknowledged “risks to both sides of our mandate.” The Q1 2026 GDP growth came in at a tepid 1.2% annualized, while the April unemployment rate held at 3.9%. For the Fed to deliver cuts sufficient to bring the lower bound

Traded on Polymarket — $73K Volume

Lower-volume market on Polymarket ($73K). Wider spreads expected — enter with limit orders and be aware of slippage risk. Currently 24c YES.