This market has settled: RESOLVED
Settled on March 29, 2026
Will the Fed’s lower bound reach 0% or lower before 2027?
Will the Fed’s lower bound reach 0% or lower before 2027? Odds: 6.5% YES on Polymarket. See live prices and trade this market.
Federal Funds Rate at Zero or Below by 2027
Current Odds
| Platform | Yes | No | Volume | Trade |
|---|---|---|---|---|
| Polymarket | 6.5% | 93.5% | $10K | Trade on Polymarket |
Market Analysis
This market is pricing an extremely low probability that the Fed will cut rates to zero percent or negative territory within the next two years, reflecting current market consensus that monetary policy will remain restrictive despite potential future rate cuts. The odds matter because they reveal how traders assess recession severity, inflation persistence, and the Fed’s willingness to adopt unconventional policy tools—signals with major implications for equity valuations, bond positioning, and economic forecasting.
The bull case rests on a severe recession scenario materializing in 2025-2026. If unemployment spikes sharply, credit stress emerges, or deflationary pressures take hold, the Fed could cut aggressively from current levels (5.25-5.50%). The Fed already demonstrated willingness to reach the zero lower bound during 2008-2014 and again in 2020. A financial crisis, commercial real estate collapse, or credit event could force emergency easing. Key catalysts include Q1 2025 earnings reports (which could reveal corporate stress), the January Fed meeting, and any deterioration in labor market data through mid-2025. The NFIB small business survey and ISM Manufacturing PMI will signal recession risk early.
The bear case—and the dominant market view—emphasizes sticky inflation requiring sustained higher rates. The Fed has consistently signaled its inflation-fighting commitment, and current core PCE remains above target. Traders expect the Fed to cut gradually rather than aggressively, with consensus forecasting rates settling in the 3-4% range by 2026. Even in a mild recession, the Fed likely holds around 2-2.5% as a policy floor to maintain economic stimulus capacity. This reflects institutional learning from the 2010s experience, when prolonged zero rates distorted asset prices without proportional growth gains.
Watch the Treasury yield curve inversion duration and real yield levels through 2025. If 10-year real yields turn deeply negative or unemployment reaches 5.5%+ by mid-2025, recession probability spikes and could shift these odds meaningfully. Fed communications in March, June, and December 2025 FOMC statements will be critical—any shift toward acknowledging deflationary risks would support a repricing. The break-even inflation rate embedded in TIPS spreads offers a real-time market signal of deflation expectations.
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Frequently Asked Questions
What’s the realistic probability the Fed actually goes negative (below 0%) versus just hitting exactly 0%?
Near-zero. U.S. political opposition to negative rates is entrenched, and the Fed has explicitly ruled out this policy. The market is essentially pricing zero as the functional floor, making the “or lower” clause almost impossible to resolve YES.
How much would unemployment need to spike to make this market repricing likely?
A rapid move to 5.5%+ over 2-3 months would start challenging current odds, but the bar for zero rates is genuinely high—most recession scenarios still price terminal rates around 2-3% based on Fed forward guidance.
Could aggressive fiscal spending in 2025-2026 prevent the rate cuts needed to hit zero?
Yes. If Republican fiscal policy or spending mandates keep inflation elevated, the Fed maintains higher rates regardless of recession depth, which is why political control of Congress through 2025-2026 matters for this outcome.