Zero Lower Bound Probabilities at Different Time Horizons is a daily measure of the likelihood that future short-term interest rates will be constrained by the zero lower bound (ZLB). This measure is calculated from prices of fixed-income derivatives using the methodology in Mertens and Williams (2021).
The term structure of probabilities provides measures at different time horizons in the future, for example three years ahead. While Mertens and Williams (2021) used caps and floors based on LIBOR to assess this risk, the updated series on this page switches from market prices based on LIBOR to caps and floors based on SOFR rates at the beginning of 2022.
Figure 1 displays the term structure of ZLB probabilities up to 10 years ahead. Figure 2 displays the time series of the ZLB probabilities at the 2-year, 5-year, 7-year, and 10-year horizons. Data for additional time horizons are available in the downloadable Excel file. A rectified Gaussian distribution underlies each estimate to account for the zero lower bound on interest rates. For additional details on methodology, see Mertens and Williams (2021) and the article’s online appendix.
The daily measures can be used to study time variation in the risk of the ZLB binding sometime in the future. Since short-term interest rates tend to comove tightly with the federal funds rate, the distributions can be interpreted as market-based beliefs about constraints on future monetary policy. Read more in Cho, Mertens, and Williams (2025).
Notes: Data reflect ZLB probabilities over various time horizons as of latest data update. They represent the probability that the 3-month LIBOR/SOFR rate will be constrained by the ZLB at the end of the time horizon. Additional term structures are available in the downloadable data file.
Notes: Data reflect 20-day moving averages of ZLB probabilities based on caps data. Lines show the likelihood of the 3-month LIBOR/SOFR rate being constrained by the zero lower bound two, five, seven, and ten years in the future. Additional time series and projection horizons are available in the downloadable data file.
References
Cho, Sophia, Thomas M. Mertens, and John C. Williams. 2025. “The Zero Lower Bound Remains a Medium-Term Risk.” FRBSF Economic Letter 2025-16 (July 7). Published concurrently on Liberty Street Economics, Federal Reserve Bank of New York (July 7).
Mertens, Thomas M., and John C. Williams. 2021. “What to Expect from the Lower Bound on Interest Rates: Evidence from Derivatives Prices.” American Economic Review 111(8, August), pp. 2,473–2,505. See supplemental files for replication details.
Download Data
Zero lower bound probabilities data (Excel document, 319 kb)
For related data on other interest rate probabilities, see Interest Rate Probability Distributions.