What Happens to Social Security's Cost of Living Adjustment (COLA) If the Fed Raises Rates Next Time?

"For seniors on Social Security, there's perhaps no more important an announcement each year than a COLA (cost-of-living adjustment) announcement. This year's COLA announcement was actually delayed due to the government shutdown. But in late October, the Social Security Administration announced that beneficiaries will be getting a 2.8% COLA in 2026. That's a slightly larger COLA than the 2.5% raise seniors got in 2025."

"The Fed's recent rate cut wasn't particularly shocking. But it's unclear as to what the Fed will do with interest rates in 2026. You may be wondering what will happen to your Social Security COLA if the Fed raises rates during its first meeting in 2026. The answer is, nothing will happen to your 2026 COLA. That 2.8% raise is set in stone."

Beneficiaries will receive a 2.8% COLA in 2026, slightly higher than the 2.5% increase in 2025, and the 2026 raise is finalized. The COLA announcement was delayed by a government shutdown but was confirmed in late October. The Federal Reserve recently cut its benchmark interest rate for the third time this year, and future Fed actions could influence inflation and future COLAs. Lower rates can raise consumer spending and inflation, potentially increasing future COLAs, while higher rates can suppress spending and inflation, potentially reducing future COLAs. Economists expect the Fed to cut or hold rates in 2026 rather than raise them.

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