2026 Federal Pay Raise​ - Is The Federal Employee Pay Raise 3% This Time?

An early indicator has been established for the federal employee pay raise set for January 2026. According to a report released at this week’s Federal Salary Council meeting, the employment cost index (ECI) increased by 3.8 percent over the 12 months ending in September, as calculated by the Labor Department.

Under federal pay law, the ECI tracks wage growth, not cost of living, for the 12-month period ending in September each year. This figure is intended to determine the across-the-board portion of the proposed pay raise in the following fiscal year’s White House budget. However, half a percentage point is typically subtracted from the ECI amount, with additional locality pay added on top, varying by geographic region.

Despite this statutory formula, it is often not followed precisely. In many cases, the full or reduced ECI figure has been used as the entire pay raise, with locality pay carved out from it. This approach characterized the first three years of the Biden administration’s raises, where the proposed total pay increase aligned with the ECI figure. As a result, overall raises varied slightly above or below the average depending on how locality adjustments were applied.

In some instances, however, the ECI has had minimal or no influence on the final raise decision. For example, President Biden proposed only a 2 percent raise for January 2025, despite the ECI reflecting a 4.5 percent increase.

Throughout the Biden administration, Congress has remained silent on federal pay adjustments, allowing the President’s recommendations to automatically take effect. This is expected to happen again for 2025.

Looking ahead to 2026, the incoming Trump administration will determine the final pay raise. President Biden confirmed in September that the 2 percent pay increase for January 2025 would be split, with 1.7 percent applied across the board and the remaining 0.3 percent allocated for locality-based adjustments.

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Let Us See The Data in Table From 2023 To 2026 Federal Pay Raise

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Historical Context of Federal Pay Raises

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2023:

• Across-the-board raise: 4.1%
• Locality pay increase: 0.5%
• Total increase: 4.6%
• This was indeed the largest wage increase for federal workers since 2002.

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2024:

• Across-the-board raise: 4.7%
• Locality pay increase: 0.5%
• Total increase: 5.2%
• The FAIR Act proposed a higher raise (8.7%), but the final budget approved a lower increase of 5.2%, in federal pay increase 2024.

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2025

• FAIR Act proposal: 7.4%
• Biden Administration proposal: 2.0%
• Final increase: The final increase for 2025 has not been determined yet. The Biden Administration's proposal is just a recommendation, and the actual increase will be decided through the budget process.

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The Process of Determining Federal Employees Pay Raise

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1. Inflation Measurement:

The primary driver for federal employee pay raise adjustments is inflation, which is measured by the Consumer Price Index (CPI). The CPI tracks changes in the cost of living, including everyday expenses such as housing, food, healthcare, and transportation. When inflation rises, the government may adjust federal pay to help employees keep pace with the increased cost of living. Without such adjustments, federal workers could experience a reduction in purchasing power, as their salaries wouldn’t stretch as far. The government closely monitors CPI fluctuations to ensure pay raises are aligned with inflation trends.

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2. Economic Analysis:

Beyond inflation, the country's overall economic health is a critical factor. Key indicators such as Gross Domestic Product (GDP) growth, unemployment rates, and interest rates provide insight into the broader economic landscape. When the economy is performing well, there is typically more room for wage increases.

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Conversely, during times of economic downturn or stagnation, the government may be more cautious in granting pay raises, as doing so could strain public finances. For example, high unemployment might lead to an emphasis on job creation rather than wage growth.

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3. Budget Constraints:

The federal government operates within a defined budget, and its financial health directly impacts decisions on federal pay. In times of budgetary constraints, such as when the national debt is rising or deficits are expanding, the government may face tough choices about where to allocate funds.

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federal employee pay raise may be deferred, limited, or reduced to ensure essential services and other critical expenditures are maintained. In some cases, even when there is pressure to increase wages, the government may prioritize spending on infrastructure, defense, or social programs over wage adjustments.

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4. Comparison to Private Sector:

The government regularly compares federal salaries to those in the private sector to maintain competitive compensation. If wages in the private sector are rising significantly, the government may need to offer larger raises to attract and retain qualified talent.

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Without competitive pay, the public sector could struggle to compete for skilled workers, especially in high-demand fields like technology, healthcare, and engineering. Conversely, if private sector wage growth is slow, the government may feel less pressure to increase federal pay.

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5. Legislative Process:

Federal employees pay raise are not automatically applied each year. Instead, they are determined through a legislative process, where Congress has the authority to pass laws or resolutions that establish the guidelines for pay increases.

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This process can be influenced by political dynamics, such as the priorities of the current administration, party control of Congress, and public opinion on government spending. In some cases, Congress may approve pay raises that align with inflation, while in other case

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6. Presidential Approval:

After Congress passes legislation on federal employees pay raise, the President plays a key role by either approving or vetoing the proposed increases.

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The President’s stance on pay raises often reflects the administration’s overall economic policies and goals. For instance, a President focused on reducing government spending might be more inclined to veto or limit pay increases, while a President aiming to stimulate economic growth or support middle-class workers may advocate for more generous raises. Presidential approval is the final step in the process, solidifying the outcome for federal employees.

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In conclusion, the process of determining federal employee pay raise 2026 is complex, involving several factors such as inflation, economic conditions, budget constraints, and comparisons with private sector salaries. While the Office of Management and Budget (OMB) has suggested a 3% raise for civilian employees in 2026, this figure is not final and may change depending on the President’s decision, economic circumstances, and political priorities. Historically, federal pay raises have varied, with a significant 5.2% increase in 2024 following a 4.6% rise in 2023

Looking ahead to 2025, a wide gap exists between the proposed 7.4% raise by the FAIR Act and the 2% recommendation from the Biden Administration, indicating that the final decision will emerge from ongoing budget negotiations. Ultimately, federal pay raises must balance economic realities with the goal of maintaining competitive compensation for government employees.

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