Fed Rate Cuts Are Back, But the Social Security COLA Is Still the Real Problem

"Many seniors are at a point in life where they no longer seek to borrow money. But for those who have variable interest debt, or who need a loan, rate cuts could provide a world of relief. The Fed does not set consumer interest rates directly. Rather, it oversees the federal funds rate, which is what banks charge each other for overnight borrowing."

"For seniors with money in the bank, though, rate cuts aren't necessarily fantastic. It's common for retirees to keep cash on hand for emergencies, or to cover living expenses when the stock market tumbles and it's a bad time to tap a retirement portfolio. Lower interest rates mean seniors on Social Security may start earning less money on their cash."

Three Fed rate cuts in late 2025 followed cooling inflation and slower growth. Rate reductions can lower consumer borrowing costs, benefiting seniors with variable-rate debt or those needing loans. The Fed sets the federal funds rate, which influences—but does not directly set—consumer interest rates. Lower benchmark rates often lead banks to offer cheaper loans and credit. Conversely, lower rates reduce returns on cash, hurting retirees who rely on bank deposits. Social Security recipients receive a 2.8% COLA in 2026, larger than 2025's 2.5% raise. That 2.8% COLA may be insufficient if tariffs or inflation raise costs faster than the COLA. Part of the concern stems from how COLAs are calculated; they are based on the Consumer Price Index.

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