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Fed's Rate Cut Could Shrink 2027 Social Security COLA
15 Dec
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.
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.
Consequently, early projections suggest that the 2027 Social Security COLA could be significantly smaller, potentially ranging from 2.3% to 2.6%. This would represent the lowest increase since 2020, a development that may significantly affect the financial planning of many seniors who depend on these benefits.
