- Federal employees can anticipate a 2.0% for the 2025 Federal Pay Raise – will this keep pace with inflation?
As we covered in a previous article, the White House suggested 2% for next year’s federal salary increase in the Biden Administration’s proposed budget for the upcoming fiscal year beginning October 1st. The pay raise would go into effect on January 1st unless there is more shutdown drama in which case it wouldn’t go into effect until later but could be backdated to the first day of the year like in 2019. Typically, the president signs an executive order around mid to late December that finalizes the figure.
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The 2% suggestion appears to be the most likely outcome at this point. Although congress could pass a higher pay increase for the federal workforce, the current group of lawmakers on Capitol Hill have not managed to get much passed legislatively. Either through a standalone law such as the FAIR Act, which proposed a 7.4% raise for feds in 2025, or included in the annual budgetary bills, the raise could be less or more than the anticipated 2.0% if Congress were to act.
2025 Federal Pay Raise vs. Inflation
According the CPI (consumer price index) data from the DOL, current economic conditions indicate an annual inflation rate of 3.5% (as of the end of March). However, inflation is expected to taper off by the end of the year to give an inflation rate of 2.2%. Because of locality pay, some feds who live in areas with a high cost-of-living will likely receive a raise higher than the flat 2.0% but it is unlikely to keep pace with the reality of rising prices.
One place federal employees can outpace inflation, however, is their TSP, if they’ve got a disciplined investment strategy and are properly allocated amongst the five index funds. You can get the information you need to start developing such a strategy at our zero-cost TSP Webinars held every month!
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