How quickly could the Fed cut rates from current 5.25-5.50% to 1.75%?

Historical precedent suggests 12-24 months for 350 bps of cuts. Emergency scenarios like 2008 or 2020 saw 300+ bps cut in under 6 months. Gradual easing would take 18-30 months with 25-50 bps cuts per meeting.

Would the Fed use other tools besides rate cuts in this scenario?

Almost certainly. Quantitative easing would resume with $80-120 billion monthly asset purchases. Forward guidance would commit to keeping rates low for extended period. Yield curve control or negative rates might be considered.

How would this affect my mortgage and savings account rates?

30-year mortgage rates would fall to 3.5-4.5%, enabling refinancing savings of $200-400 monthly on a $400k loan. Savings account rates would drop to 0.5-1.5%, pressuring savers to seek higher-yielding alternatives.

What happens to the dollar if the Fed cuts rates this aggressively?

The dollar would likely weaken 8-15% against major currencies, especially if other central banks maintain higher rates. However, safe-haven flows during crisis could partially offset rate-driven depreciation.

Should I move my portfolio entirely into bonds if this scenario unfolds?

Not necessarily. While bonds would rally initially, economic recovery following easing could favor equities. Diversification across Treasuries, quality growth stocks, and real assets provides balanced exposure to various outcomes.

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FED RATES · CENTRAL BANKS

What happens if Fed Lower Bound Drops to 1.75% or Below

The Federal Reserve cuts its policy rate floor to 1.75% or lower, signaling aggressive monetary easing in response to severe economic weakness or deflationary pressures.

21impacts

8to buy

2to sell

Investment Opportunities

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Cascade Impacts

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What NOT to do

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DISCLAIMER

MacroCade publishes scenario theses for educational and informational purposes only. Nothing on this page constitutes investment, legal, tax, or accounting advice, nor a solicitation to buy or sell any security. Probability estimates, opportunities, and historical precedents are derived from public data and analyst judgment and may be wrong. Past performance does not guarantee future results. You are solely responsible for your own investment decisions — consult a licensed advisor before acting.

Updated recently

FED RATES · CENTRAL BANKS

What happens if Fed Lower Bound Drops to 1.75% or Below

The Federal Reserve cuts its policy rate floor to 1.75% or lower, signaling aggressive monetary easing in response to severe economic weakness or deflationary pressures.

21impacts

8to buy

2to sell

ProbabilityMarket Odds · Polymarket

0.0%

Summary

2 min read

A Federal Reserve lower bound of 1.75% or below by 2027 would represent a dramatic shift from today's 5.25-5.50% range, requiring roughly 350 basis points of cuts. This scenario implies severe economic distress—either a deep recession, persistent deflation, or financial crisis. Such aggressive easing would reshape asset prices across equities, bonds, and currencies while signaling coordinated global central bank action.

Investment Opportunities

2 ranked · 2 buy · 0 sell

01TLTBuy

+35%

Target

iShares 20+ Year Treasury Bond ETF

Long-duration Treasuries rally sharply when rates fall. A drop to 1.75% would push 30-year yields down 200+ bps, generating substantial price appreciation in TLT.

02IEFBuy

+18%

Target

iShares 7-10 Year Treasury Bond ETF

Intermediate-duration Treasuries offer lower volatility than TLT while still benefiting significantly from rate cuts, providing a balanced exposure to falling yields.

Investment Opportunities

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Cascade Impacts

3 impacts · if scenario materializes

Treasury Yields Collapse Across Curve

10-year Treasury yields fall 200+ basis points as markets price in sustained low rates. Yield curve steepens initially as long-end rallies harder, then flattens as recession expectations solidify.

BUYTLTBUYIEFBUYSHY

95%

LIKELY

Mortgage Rates Drop Below 4%

30-year fixed mortgage rates fall to 3.5-4.0% range, stimulating housing refinancing activity and potentially stabilizing home prices despite economic weakness.

BUYXHBBUYITBBUYXLRE

88%

LIKELY

Corporate Borrowing Costs Plummet

Investment-grade corporate bond yields compress 150-200 bps, enabling companies to refinance debt at lower rates and extend maturities, improving balance sheet flexibility.

BUYLQDBUYVCITBUYUSIG

90%

LIKELY

Cascade Impacts

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Sectors Impacted

7 industries · asymmetric exposure

Financials

KRE · KBE · LQD · VCIT

Mixed

Government Bonds

IEF · SHY · BIL · SHV

Buy

Information Technology

IGV · WCLD · SPY

Buy

Real Estate

ITB · XLRE · PHM · LEN

Buy

Emerging Markets

VWO · EMB · ACWI · VT

Buy

Consumer Discretionary

LVMUY · WMT

Mixed

Materials

DBC · CPER

Sell

What NOT to do

Common mistakes when positioning for this scenario.

Shorting Long-Duration Treasury Bonds

Betting against TLT or EDV would be catastrophic in this scenario. A 350 bps rate cut would generate 30-40% gains in 20-30 year Treasuries, crushing short positions.

Assuming Inflation Remains Elevated

Rate cuts to 1.75% signal deflation or disinflation dominance. Strategies predicated on sustained 3-4% inflation would fail as CPI likely falls below 2%.

What NOT to do

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Tickersvia Yahoo Finance

1mTLT

$85.12

-1.1%

1mIEF

$93.78

-1.2%

Federal Funds Effective Rate

FRED · DFF

3.62%

as of Jun 8, 2026

Historical Precedents

Past events with similar dynamics.

2008

bear

Match 85%

Global Financial Crisis Rate Cuts

Lehman Brothers collapse triggered credit freeze and severe recession. Fed slashed rates from 5.25% to 0-0.25% in 16 months.

S&P 500 fell 38% during cutting cycle but rallied 70% in subsequent 18 months as QE and fiscal stimulus took effect. Treasury yields collapsed, with 10-year falling to 2.0%.

2020

bull

Match 75%

COVID-19 Pandemic Emergency Easing

Global pandemic and economic lockdowns caused sudden stop in activity. Fed cut rates 150 bps to 0-0.25% in two weeks.

S&P 500 dropped 34% in 5 weeks but recovered fully within 5 months. Unprecedented fiscal and monetary support drove V-shaped recovery in asset prices.

2001

bear

Match 70%

Dot-Com Bust and 9/11 Response

Tech bubble burst and September 11 attacks prompted aggressive easing. Fed cut rates from 6.5% to 1.0% over 30 months.

S&P 500 declined 23% during 2001-2002 bear market. Recovery was gradual, taking 5 years to reach new highs. Housing market boomed on low rates.

FAQ

A severe recession with GDP contracting 2-3%, unemployment rising above 6-7%, or persistent deflation with core PCE falling below 1% would compel such aggressive easing. Financial crisis or global contagion could also trigger emergency cuts.

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What happens ifReserve Bank of Australia Cuts Cash Rate Following Mid-Year Meeting

The RBA implements an expansionary monetary policy shift by lowering the official cash rate, aiming to stimulate economic activity through reduced borrowing costs and increased liquidity.

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What happens ifBank of Canada Holds Interest Rates Steady

The Bank of Canada maintains its policy rate instead of cutting by 25 basis points, signaling stronger-than-expected economic conditions and triggering currency and bond market volatility.

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What happens ifBank of Canada Announces 50+ Basis Point Rate Cut

The Bank of Canada delivers an aggressive 50+ basis point rate cut, signaling a major shift toward monetary easing amid slowing growth and cooling inflation pressures.

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DISCLAIMER

ProbabilityMarket Odds · Polymarket

0.0%

Summary

2 min read

What happens if Fed Lower Bound Drops to 1.75% or Below

Comments0

Get the scenario of the week

What happens if Fed Lower Bound Drops to 1.75% or Below

Treasury Yields Collapse Across Curve

Mortgage Rates Drop Below 4%

Corporate Borrowing Costs Plummet

Shorting Long-Duration Treasury Bonds

Assuming Inflation Remains Elevated

Global Financial Crisis Rate Cuts

COVID-19 Pandemic Emergency Easing

Dot-Com Bust and 9/11 Response

What economic conditions would force the Fed to cut rates to 1.75% or below?

How quickly could the Fed cut rates from current 5.25-5.50% to 1.75%?

Would the Fed use other tools besides rate cuts in this scenario?

How would this affect my mortgage and savings account rates?

What happens to the dollar if the Fed cuts rates this aggressively?

Should I move my portfolio entirely into bonds if this scenario unfolds?

Related scenarios

What happens ifChina's GDP Growth Breaks Outside Target Range

What happens ifReserve Bank of Australia Cuts Cash Rate Following Mid-Year Meeting

What happens ifBank of Canada Holds Interest Rates Steady

What happens ifBank of Canada Announces 50+ Basis Point Rate Cut

Comments0

Treasury Yields Collapse Across Curve

Mortgage Rates Drop Below 4%

Corporate Borrowing Costs Plummet

Shorting Long-Duration Treasury Bonds

Assuming Inflation Remains Elevated

Global Financial Crisis Rate Cuts

COVID-19 Pandemic Emergency Easing

Dot-Com Bust and 9/11 Response

What economic conditions would force the Fed to cut rates to 1.75% or below?

How quickly could the Fed cut rates from current 5.25-5.50% to 1.75%?

Would the Fed use other tools besides rate cuts in this scenario?

How would this affect my mortgage and savings account rates?

What happens to the dollar if the Fed cuts rates this aggressively?

Should I move my portfolio entirely into bonds if this scenario unfolds?

Related scenarios

What happens ifChina's GDP Growth Breaks Outside Target Range

What happens ifReserve Bank of Australia Cuts Cash Rate Following Mid-Year Meeting

What happens ifBank of Canada Holds Interest Rates Steady

What happens ifBank of Canada Announces 50+ Basis Point Rate Cut