What Happens to Social Security’s Cost of Living Adjustment (COLA) If the Fed Leaves Rates the Same?

The Federal Reserve recently announced that it would be lowering its benchmark interest rate for the third time this year. The Fed has also signaled that it may be looking to lower interest rates just once in 2026.

But the Fed may also decide to hold interest rates steady in the new year rather than move forward with even a single rate cut. And you may be wondering how that might impact your Social Security cost-of-living adjustment (COLA).

The answer is that even if the Fed cuts rates, that won’t have a direct impact on next year’s COLA or the one after that. And if the Fed holds rates steady, it should not hurt Social Security recipients from a COLA perspective.

Will the Fed keep rates steady in 2026?

The Fed typically cuts interest rates to stimulate the economy, boost unemployment, and encourage spending among consumers. So the question is whether that will be necessary.

Current economic forecasts for 2026 aren’t overwhelmingly positive, but they’re also by no means dire. Inflation, for example, is projected to be moderate in 2026, and unemployment, which is currently pretty low, isn’t expected to change much. GDP growth is expected to expand moderately as well.

All of this very much makes the case for a “wait and see” approach on the part of the Fed. So chances are, the central bank won’t be rushing to cut interest rates in the new year.

This isn’t to say that a rate cut isn’t possible. And two may even be in the cards. But that’s not a given.

What happens if the Fed holds rates steady?

If the Fed holds rates steady in 2026, borrowing costs for consumer products like mortgages, personal loans, and auto loans could remain stable. Savings account and CD rates could remain relatively strong as they are today, which is a good thing for people with money in the bank. It could also be a good thing for retirees with lot of their assets in cash.  

As far as Social Security is concerned, steady interest rates won’t impact 2026’s COLA. But neither will rate cuts or hikes, for that matter.

Social Security COLAs are based on inflation, and 2026’s raise is already set in stone. Now if the Fed opts to cut rates in 2026, and that leads to an uptick in consumer spending, inflation levels could rise, leading to a larger COLA for seniors in 2027.

But let’s also remember that the Fed’s recent rate cuts have all been minor ones, not drastic ones. The Fed has been gradually lowering its benchmark interest rate by a quarter of a point, which is unlikely to have a huge impact on borrowing rates.

We’ll need to sit tight and see how things play out

All told, it’s too soon to know what the Fed will do in 2026 as far as interest rate are concerned. The Fed’s stance is that it needs to constantly assess economic data to make those decisions, so the central bank isn’t all that big on speculating on these things ahead of time.

But either way, your upcoming Social Security COLA won’t change for 2026, regardless of what the Fed does. And even if the Fed lowers (or raises) interest rates in 2026, it’s unlikely to have a huge impact on the following year’s COLA either.