This Is What the Fed Just Said About a Raise in Social Security Checks
Millions of older Americans get the bulk of their retirement income from Social Security. As a result, many seniors are eager to know what next year’s cost-of-living adjustment, or COLA, will look like. In early 2025, Social Security benefits got a 2.5% COLA, which disappointed a lot of people who were hoping for a […] The post This Is What the Fed Just Said About a Raise in Social Security Checks appeared first on 24/7 Wall St..
Key Points
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The Fed confirmed that inflation is still elevated.
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The central bank decided to hold interest rates steady.
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While the Fed’s actions don’t directly impact Social Security, they can serve as an indication as what’s to come where COLAs are concerned.
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Millions of older Americans get the bulk of their retirement income from Social Security. As a result, many seniors are eager to know what next year’s cost-of-living adjustment, or COLA, will look like.
In early 2025, Social Security benefits got a 2.5% COLA, which disappointed a lot of people who were hoping for a larger raise. Is it possible that benefits will get a larger COLA in 2026? Maybe. And the Federal Reserve just gave a big clue as to what to expect.
The Fed paused interest rates for its fourth meeting in a row
The Fed is in charge of overseeing monetary policy. When we talk about the Fed raising or lowering interest rates, we’re talking about the federal funds rate, not consumer interest rates. The federal funds rate is what banks charge each other for overnight borrowing.
The Fed raises and lowers interest rates in response to inflation. When inflation increases, the Fed raises rates to discourage consumers from spending and cool demand.
In recent years, the Fed implemented numerous interest rate hikes in response to rampant inflation. This year, the Fed is expected to cut rates in response to cooling inflation. But at its June meeting, it made the decision to hit pause on rate cuts as it had done in previous meetings this year.
What the Fed’s decision tells us about next year’s Social Security COLA
The Fed does not have any direct influence on Social Security COLAs. Rather, those raises are pegged to inflation. The Fed can react to inflation, but it can only control it to some degree — namely, by raising interest rates as needed to slow it down.
Right now, the Fed, like everybody else, is waiting for inflation to cool a bit more. Once that happens, the Fed can more comfortably lower interest rates, which could lead to more affordable borrowing conditions for consumers.
Meanwhile, here’s what the Fed had to say about inflation in its most recent statement: “Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.”
Offhand, that seems like it would be decent news for Social Security, but not great news. “Somewhat elevated” inflation means seniors on Social Security most likely won’t be in for a such a large COLA in 2026.
But there’s more. Fed Chair Jerome Powell was also quoted by CNBC as saying, “Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs because someone has to pay for the tariffs.”
That’s not good news from a general economic standpoint, since tariffs have the potential to drive living costs way up. But if that happens, and there’s a notable uptick in inflation, it could set the stage for a larger Social Security COLA in 2026.
How high might that COLA be? It’s too soon to say.
Recent projections have called for a comparable COLA in 2026 to what seniors received earlier this year. But if tariffs drive prices up, inflation could reverse course, and seniors on Social Security could be in for a much more generous boost.
Of course, an uptick in inflation puts the Fed in a tough spot. It’s almost impossible to lower interest rates when inflation is rising. But that’s the Fed’s problem to deal with.
The post This Is What the Fed Just Said About a Raise in Social Security Checks appeared first on 24/7 Wall St..
