"The U.S. Federal Reserve's latest interest rate cut of a quarter percentage point lowered the benchmark federal funds rate to a range of 3.5%-3.75% in mid-December. This move continues to spark optimism among market participants, as valuations of most risk assets are directly tied to the risk-free rate, at least when it comes to modeling out a company's discounted future cash flows. Bond yields have also come down considerably in recent months (lower yields mean higher prices), so investors are winning across the board."
"Accordingly, the Social Security Administration's (SSA) cost of living adjustment (COLA) each year in October is a big event that millions focus intently on. There's good reason for this, as this COLA will dictate how much a given senior's monthly check will increase for the coming year. Most seniors may already be aware that this cost of living adjustment is tied to inflation, but let's dive into whether there's any correlation to how this cut may affect next year's COLA (2027)."
The Federal Reserve cut the federal funds rate by a quarter point to 3.5%–3.75% in mid-December, prompting optimism as risk-asset valuations respond to the risk-free rate. Bond yields have fallen, boosting investors across markets. Millions of Americans do not benefit directly from these markets, and retirees depend on Social Security payments as a primary income source. The SSA issues an annual COLA each October to adjust benefits for rising prices. The COLA is calculated primarily from changes in the consumer price index (CPI). Interest-rate moves can influence inflation trends, so rate cuts affect COLA only indirectly via CPI movements during the measurement period.
Read at 24/7 Wall St.
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