Warsh Warns: Inflation Concerns Spark Higher Social Security COLA Odds

Kevin Warsh, Chair of the Federal Reserve, has expressed concerns about inflation in his recent speech at the Fed's annual symposium in Jackson Hole, Wyoming. He emphasized that if the Fed gets inflation wrong, hard-working Americans will be affected, not just financial highfliers.

Warsh noted that the current Personal Consumption Expenditures (PCE) price index has increased 3.7% over the last 12 months and 4.1% over the last six months, exceeding the Fed's target of 2%. He also stated that 54% of the 199 individual components of the PCE had price increases of more than 3% over the past 12 months, which is higher than the average of 32% seen in the two decades before the COVID-19 pandemic.

The connection between Warsh's warning and the 2027 Social Security COLA lies in the fact that annual Social Security benefit increases are set based on inflation numbers. The Social Security Administration calculates the percentage difference between the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the current year and the same period in the previous year to determine the COLA amount for the next year.

The odds of a Fed rate hike have risen, with CME Group's FedWatch putting the probability of a rate increase in the FOMC's September meeting at 56.9%. This could lead to lower inflation and a higher Social Security COLA for 2027.