Will the Fed’s lower bound reach 1.25% or lower before 2027?

This market is pricing in an extremely low probability (8%) for the Fed's lower bound reaching 1.25% or below by end-2026, despite offering a staggering 1,273% implied yield on the "Yes" side—a classic risk/reward asymmetry that suggests either deep skepticism about rate cuts or significant tail-risk hedging demand. The 11¢ spread and zero 24-hour volume indicate severe illiquidity, making the 8¢ price potentially unreliable, while the sharp 7-day decline from 12¢ to 8¢ and extreme 1,102% realized volatility signal high uncertainty about Fed policy trajectory. With a Cliff Risk Index of 9 and 258 days to expiry, this appears to be a speculative tail-hedge market where the pricing may not reflect true consensus expectations given the illiquid conditions.

Resolution rules

The FED interest rates are defined in this market by the lower or the upper bound of the target federal funds range. The decisions on the target federal fund range are made by the Federal Open Market Committee (FOMC) meetings. This market will resolve to “Yes” if the lower or the upper bound of the target federal funds rate reaches the specified level at any point by December 31, 2026, 12:59 PM ET. Otherwise, this market will resolve to “No.” Emergency rate cuts and hikes outside the regularly scheduled meetings will be considered. The resolution source for this market is the official website of the Federal Reserve at: https://www.federalreserve.gov/monetarypolicy/openmarket.htm. This market may resolve as soon as the relevant data showing the reached level is published.

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