Fed’s Rate Freeze Could Sting for Social Security Recipients

When inflation rose 3.3% in March, it signaled that the Federal Reserve would most likely not lower its benchmark interest rate in the course of its late April meeting. And sure enough, the Fed just opted to hold its federal funds rate steady once again.

The Fed typically lowers interest rates to encourage consumers to spend their money. Even though the Fed doesn’t set consumer interest rates directly, its decisions influence what it costs to borrow.

The Fed’s federal funds rate determines what it costs banks to borrow from each other overnight. When that rate gets lowered, banks save. And it’s then common for them to pass some of that savings along to consumers.

But given March’s inflation reading, the Fed was smart not to lower its federal funds rate. Promoting spending isn’t a smart thing to do when costs are already up. Unfortunately, though, the Fed’s recent decision could have a negative impact on seniors collecting Social Security.

Why the Fed’s inaction hurts retirees

The Fed has no authority over Social Security benefits. It does not determine what those monthly benefits entail, nor do the Fed’s actions directly influence Social Security’s cost-of-living adjustments.

The reason the Fed’s interest rate pause could hurt Social Security recipients boils down to expensive borrowing.

It’s a big myth that older Americans don’t rely on credit. Many carry credit card balances, and many need to borrow money just to keep up with their bills. The fact that the Fed didn’t lower its benchmark rate means Social Security recipients shouldn’t expect any relief in the context of credit card interest rates or loan rates.

Furthermore, many Social Security recipients don’t have a lot of money at their disposal, but they do have home equity. Senior homeowners ages 65 and over actually have a median $250,000 in home equity, according to the National Council on Aging.

Tapping equity can make a lot of sense for cash-strapped seniors. Home equity loans commonly offer lower interest rates than personal loans and credit cards since they’re secured loans.

But loan rates across the board are elevated. And since the Fed does not seem to be in a hurry to lower its benchmark interest rate anytime soon, Social Security recipients who are hoping to access their home equity may have to wait even longer for that to become affordable.

Will the Fed cut rates at all this year?

At this point, there’s a pretty low chance of the Fed making meaningful rate cuts in 2026. That doesn’t mean the Fed is guaranteed not to budge on rates.

But the central bank may only be looking at a single rate cut this year, if that. And if that cut happens, it may not come until later in the year.

As such, Social Security recipients who are trying to cash in on home equity or borrow in other ways may want to hold off. But that’s not the only option.

If you’re on Social Security and you need to borrow money to stay afloat, one thing that could help tremendously is boosting your credit score. You can do this by paying your bills on time and keeping credit card balances low relative to your overall credit limit.

The higher your credit score, the more competitive borrowing rates you might get. So even if there’s no broad relief in the form of interest rate cuts, you might qualify for a more affordable loan if you manage to improve your credit profile.