How does the Federal Reserve's rate cut affect Social Security COLA?

While the Fed's rate cuts don't directly set the COLA, they influence inflation. Lower inflation due to rate cuts can result in a smaller COLA increase for Social Security benefits.

When will the 2027 Social Security COLA be announced?

The COLA is typically announced in October, based on inflation data from the third quarter of the year.

What is the Fed's target inflation rate?

The Federal Reserve has a target inflation rate of 2%, aiming for price stability.

Home / Business and Economy / Fed's Rate Cut Could Shrink 2027 Social Security COLA

Fed's Rate Cut Could Shrink 2027 Social Security COLA

15 Dec

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Summary

The Federal Reserve cut interest rates by 0.25% in December 2025.
This rate cut may lead to a smaller Social Security COLA in 2027.
The Fed's decision was made with incomplete economic data due to a shutdown.

Fed's Rate Cut Could Shrink 2027 Social Security COLA

The Federal Reserve concluded its 2025 meetings on December 10th by implementing a 0.25% interest rate cut, marking the third reduction this year. This brings the benchmark rate into the 3.50% to 3.75% range for early 2026. The decision, achieved with a 9-3 vote split, was made despite reliance on external data due to a government shutdown affecting official economic reports.

The Fed's monetary policy adjustments have direct implications for retirees, particularly concerning the Social Security Cost of Living Adjustment (COLA). While the COLA calculation is based on inflation as measured by the CPI-W, the Fed's commitment to stabilizing inflation impacts the broader economic environment. A lower interest rate environment, influenced by the Fed's actions, could contribute to slower inflation.