Core Insights - The probability of the federal funds rate reaching the "zero lower bound" (ZLB) in the next seven years is estimated at 9%, with current rate uncertainty exacerbating this risk [2] - Despite higher expected interest rates compared to the past decade, significant uncertainty remains, keeping the ZLB risk notable [2] - Empirical evidence suggests that changes in interest rate expectations are the primary drivers of ZLB risk [2] Historical Context - The Federal Reserve first lowered rates to the 0%-0.25% range during the 2008 financial crisis to stimulate economic recovery, maintaining this level for seven years [3] - Rates were again reduced to zero in response to the economic impact of the COVID-19 pandemic, lasting for two years [3] - Recent research indicates that the risk of returning to ZLB persists, influenced by complex economic conditions, geopolitical conflicts, and global economic sluggishness [3]

Core Viewpoint - The Federal Reserve cannot assume that its benchmark loan rate will not drop back to zero, with a long-term probability of 9% for this scenario [1][3]. Group 1: Research Findings - The probability of the federal funds rate reaching the so-called "zero lower bound" (ZLB) within the next seven years is estimated at 9% [1]. - The current high uncertainty surrounding interest rates has increased the risk of hitting the ZLB, similar to levels observed in 2018 [1][3]. - Empirical evidence suggests that changes in interest rate expectations are the main driver of ZLB risk [3]. Group 2: Historical Context - The Federal Reserve first lowered rates to the 0%-0.25% range during the 2008 financial crisis to stimulate the economy, maintaining this level for seven years [3]. - Rates were again reduced to zero during the COVID-19 pandemic and remained there for two years [3]. - There has been skepticism among policymakers and economists regarding whether post-pandemic inflation and economic growth indicate a departure from the ZLB risk, but recent research indicates that this risk still exists [3].

Core Viewpoint - The Federal Reserve's report indicates a 9% probability that the benchmark interest rate could drop to zero within the next seven years due to increased uncertainty in current interest rates [1] Summary by Relevant Sections - **Interest Rate Projections** - The report highlights that the Federal Reserve cannot assume that the benchmark loan rate will not reach zero at some point in the future [1] - Current data suggests that future interest rate expectations are higher compared to the past decade, but increased uncertainty poses significant risks of hitting the zero lower bound (ZLB) in the medium to long term [1] - **Historical Context** - The risk of reaching the zero lower bound is noted to be similar to levels observed in 2018, indicating a potential return to previous economic conditions [1]