The Fed's December Rate Cut Means Social Security Retirees Could Be In for a COLA Surprise

"The Federal Reserve had its last meeting of 2025 on December 10 and, as predicted, the Central Bank delivered its third straight interest rate cut. This time, rates dropped by a quarter point, which means we go into 2026 with the benchmark rate in the 3.50% to 3.75% range. This reflects a three-quarters of a percentage point drop from the start of the year, when the benchmark rate was set 4.25% to 4.50% target rate in January."

"The Fed was split in its decision to cut rates, with a 9-3 vote in favor, and the rate cut may be the last for a while as the post-meeting statement said "In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.""

"The Fed was also acting with incomplete data, as the prolonged government shutdown earlier this year meant it had to rely on research from outside sources, including a report from payroll provider ADP, as unemployment and inflation data from government sources were delayed. Still, the decision will impact many aspects of the economy - and it could mean that retirees are in for a COLA surprise in the upcoming year."

The Federal Reserve cut its benchmark interest rate by 0.25 percentage points to 3.50%–3.75% at its December 10, 2025 meeting, marking the third consecutive cut and a 0.75 percentage point decline since January. The committee approved the reduction by a 9-3 vote and signaled that further adjustments will depend on incoming data, the evolving outlook, and the balance of risks. The Fed relied on outside research, including ADP payroll data, because a prolonged government shutdown delayed official unemployment and inflation releases. The rate change will affect broad economic conditions and may reduce the Social Security COLA for retirees.

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