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

Prediction markets put the probability at 10%: Will the Fed’s lower bound reach 3.25% or lower before 2027. Currently, markets see this as unlikely (10% YES). Fed interest rate predictions for 2026-2028: Will rates fall? What to expect for your money, mortgages, and investments..

What’s Happening

As of January 22, 2026, market participants assign a 10% probability that the Federal Reserve’s lower bound will reach 3.25% or lower before 2027, implying a 90% chance the target range remains above that threshold. This pricing follows the Fed’s December 2025 meeting, where the Federal Open Market Committee held the federal funds rate at 4.00%–4.25%, marking a pause after 75 basis points of cumulative cuts since September 2025. The current lower bound of 4.00% sits 75 basis points above the 3.25% level in question, requiring at least three additional 25-basis-point reductions within the next 11 months to hit the target. The last time the lower bound was at or below 3.25% was during the 2019–2020 easing cycle, when the Fed cut to 0.00%–0.25% in response to the pandemic, followed by an aggressive tightening cycle that peaked at 5.25%–5.50% in July 2023 [Noradarealestate, Jan 22].

The 90% NO probability reflects a resilient labor market and sticky core inflation. The December 2025 Consumer Price Index (CPI) reported a 2.9% year-over-year increase, with core CPI at 3.1%, both above the Fed’s 2% target. Nonfarm payrolls added 212,000 jobs in December, exceeding consensus estimates of 170,000, while the unemployment rate held at 4.1%. These data points, released by the Bureau of Labor Statistics on January 9, 2026, suggest the economy remains above trend, reducing the urgency for aggressive easing. Additionally, the 10-year Treasury yield has hovered near 4.35%, while the 2-year yield sits at 3.95%, maintaining a modestly positive yield curve that historically correlates with continued economic expansion rather than recessionary conditions that would force rapid rate cuts [Noradarealestate, Jan 22].

Looking ahead, the January 27–28, 2026 FOMC meeting will provide the next policy signal, with CME FedWatch data showing a 78% probability of holding rates steady. The Fed’s December Summary of Economic Projections indicated a median dot of 3.75% for end-2026, implying only two cuts of 25 basis points each, which would place the lower bound at 3.50% — still above the 3.25% threshold. For the lower bound to reach 3.25% or lower, the Fed would need to deviate from its own projections, likely requiring a sharp deterioration in GDP growth or a spike in unemployment above 5%. The Q4 2025 GDP advance estimate, scheduled for release on January 29, 2026, is forecast at 2.1% annualized, which would mark the sixth consecutive quarter of above-2% growth

Traded on Polymarket — $81K Volume

Lower-volume market on Polymarket ($81K). Wider spreads expected — enter with limit orders and be aware of slippage risk. Currently 10c YES.