Will the Fed’s lower bound reach 3.0% or lower before 2027?

The market is pricing in only a 21% probability that the Fed will cut rates to 3.0% or lower by end-2026, despite the extremely high implied yield of 532% for "Yes" positions—a stark asymmetry suggesting either significant underpricing of tail risk or market skepticism about aggressive rate cuts. Volume is thin at $726 daily against $26.3M open interest, and the price has collapsed 38% over seven days (from 34¢ to 21¢), indicating a sharp repricing downward as recent Fed communications likely signaled a more hawkish stance. With 258 days to expiry and realized volatility at 193%, this remains a high-uncertainty market, though the cliff risk index of 4 suggests the outcome may hinge on a discrete policy decision rather than gradual drift.

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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