The Fed Just Dropped a Major Hint About 2026’s Social Security Raise for Baby Boomers

If you’ve been seeing the Federal Reserve a lot in the news lately, there’s a reason for that. The Fed met this week to discuss its interest rate policies. And the big question on everybody’s mind was whether the central bank would lower its benchmark interest rate.

President Trump has been calling on the Fed to move forward with rate cuts. But the Fed has the authority to act independently and do what it thinks is best for the U.S. economy as a whole.

Not surprisingly, the Fed opted not to lower interest rates at its July meeting. Given that inflation, as measured by the Consumer Price Index (CPI), ticked upward in June, many agreed that pausing rates made sense.

If you’re a retiree on Social Security, you may be wondering how the Fed’s decision might impact your benefits, specifically in the context of next year’s cost-of-living adjustment (COLA).

The reality is that the Fed does not get to decide what Social Security COLAs look like. Those COLAs are calculated based on movement in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the CPI.

That said, the Fed’s most recent interest rate decision could have an indirect impact on 2026’s Social Security COLA. Seniors should understand what may be in store for 2026 so they can prepare accordingly.

What the experts are saying so far about 2026’s Social Security raise

It’s too soon to know what 2026’s Social Security COLA will look like, since it’s based on third-quarter data from the CPI-W. However, based on inflation readings to date, the nonpartisan Senior Citizens Group predicts that next year’s COLA will amount to 2.6%. That’s a modest increase from 2025’s COLA of 2.5%.

It’s worth noting that earlier in the year, the Senior Citizens League was estimating 2026’s Social Security COLA at 2.1%. The group has since increased that number based on inflationary pressure.

What the Fed’s recent decision means for 2026’s Social Security COLA

Pausing interest rates won’t lead to a larger Social Security COLA, nor will it lead to a smaller one — at least not directly. However, higher interest rates disincentivize consumers from spending money. When it’s more expensive to borrow, people tend to spend their money more conservatively, keeping prices more stable.

If the Fed were to lower its benchmark interest rate, it could lead to lower borrowing costs in the form of more affordable credit card and loan interest rates. That, in turn, could motivate consumers to increase their spending.

When consumer spending increases, prices tend to rise, leading to higher levels of inflation. And the more elevated inflation is, the higher Social Security COLAs are apt to be.

This doesn’t mean that the aforementioned 2.6% projection is in danger of dropping, though. That will depend more so on how inflation trends in the coming months than what the Fed does.

There’s also the potential impact of tariffs to consider. If tariffs spur an uptick in inflation, that could lead to a larger Social Security COLA in 2026.

All told, a lot is still up in the air with regard to next year’s Social Security raise. But even if inflation rises modestly in the coming months, Social Security recipients should not expect a gigantic COLA along the lines of the raises that arrived shortly after the pandemic.

Even if next year’s COLA comes in higher than 2.6%, it’s unlikely to be much higher.

Retirees who are struggling to make ends meet based on their current monthly Social Security checks may need to explore different options for boosting their income, such as going back to work. Reducing expenses may also be necessary for people who can’t hold down a job but also can’t get by easily on their Social Security benefits.

The post The Fed Just Dropped a Major Hint About 2026’s Social Security Raise for Baby Boomers appeared first on 24/7 Wall St..