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.

Meanwhile, the topic of interest rates has been in the news a lot lately — namely, because the Federal Reserve just made the decision to lower its benchmark interest rate for the third time in a row this year.

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.

A 2026 rate hike could impact your 2027 COLA. But a 2026 rate cut is also pretty unlikely.

How the Fed’s actions impact COLAs

The Fed is in charge of controlling monetary policy. It tends to raise interest rates to slow down inflation and cut interest rates to stimulate the economy.

If the Fed lowers interest rates, it could lead to an uptick in consumer spending and a higher level of inflation. That could, in turn, lead to a larger COLA.

If the Fed raises interest rates, it will typically discourage consumer spending. That tends to lead to lower inflation and smaller COLAs.

Is the Fed likely to raise interest rates in 2026?

In a word, no.

While the Fed is anticipating fewer rate cuts in 2026 than in 2025, the central bank has not signaled that it’s looking to raise its benchmark interest rate. And the general consensus among economists is that the Fed will either cut rates in 2026 or hold rates steady.

There’s a reason for this outlook.

For one thing, inflation, which is a core driver of rate-related decisions, is expected to ease in 2026. The Fed typically raises rates to slow down inflation. But if that happens naturally, a rate hike won’t be necessary.

Also, unemployment levels are expected to remain moderate in 2026. And relatively stable unemployment typically does not make the case for rate hikes.

Similarly, when the economy grows at a rapid pace, rate hikes can help prevent a spike in inflation. But the economy isn’t expected to boom in 2026. So once again, a rate hike is unlikely to be appropriate.

All told, the Fed’s actions on interest rates don’t directly impact COLAs. Rate cuts could indirectly lead to larger COLAs, and rate hikes could indirectly lead to smaller ones.

But since the Fed is not expected to raise interest rates in 2026, there’s little reason to expect a smaller COLA in 2027 off the bat. That scenario may end up coming to be due to inflation, but a 2026 rate hike is an unlikely cause based on current economic conditions.