Personal Finance

Is the ‘vibecession’ here to stay? Here’s what experts say

Published

4 months ago

November 7, 2024

How investors are viewing global uncertainty this election year

Some consumers have been weighed down by a “vibecession” for a while now — and those feelings might get worse, experts say.

A “vibecession” is the disconnect between consumer sentiment and economic data, said Kyla Scanlon, who coined the term in 2022. Scanlon is the author of “In This Economy? How Money and Markets Really Work.”

“It’s this idea that economic data is telling us one story and consumer sentiment is telling us another,” she tells CNBC.

Nearly half, 45%, of voters say they are financially worse off now than they were four years ago, and the highest rate since 2008, according to NBC Exit Poll data.

Yet economic metrics show the economy is booming. Inflation, while it’s still a burden for consumers, has slowed down significantly. While some warning signs have popped up in the job market, to some degree conditions are normalizing from the red-hot market of a few years ago.

“The economy is so extraordinarily personal, and people really hate inflation,” said Scanlon. “That’s what we saw in this presidential election.”

Even if the economy stays on track, Americans will likely continue to feel a “vibecession,” experts say.

The vibes might actually get worse, depending on what policies President-elect Donald Trump enacts, said Jacob Channel, senior economist at LendingTree. High-rate tariffs on imported goods will likely wipe out progress made to reduce inflation.

“If Donald Trump as president enacts the economic policies that he proposed as a candidate, we’re not only going to have a vibecession, we’re going to have a real recession,” Channel said.

Inflation and the labor market

Inflation, or the rate at which prices for goods and service increase over time, has come down — which means prices are still rising, but at a slower pace. Prices overall remain high, said Brett House, economics professor at Columbia Business School.

“Americans’ lingering frustration with the economy and their personal circumstances appears rooted in the persistently high prices that remain post-pandemic,” he said. “This makes for daily sticker shocks when buying groceries, getting a burger, paying rent and filling up the car.”

The consumer price index, a gauge measuring the costs of goods and services in the U.S., grew to a seasonally adjusted 0.2% in September, putting the annual inflation rate at 2.4%, according to the Bureau of Labor Statistics.

While the Federal Reserve is still concerned about inflation, “we’re seeing these signs of weakness in the labor market,” Scanlon said.

The quits rate was 3.1 million in September, a 1.9% decrease from a month before, the Bureau of Labor Statistics reported. There’s also a slowdown in hiring. The economy only added 12,000 jobs in October, the BLS reported. That’s less than the forecast of 100,000 increase and lower than the 223,000 jobs added in September.

To be sure, “a lot of this is just simply normalization after the distortions that occurred after the COVID shutdowns,” said Mark Hamrick, senior economic analyst.

Additionally, the unemployment rate continues to hold steady at 4.1% and wage growth is up 4% from a year prior. “This suggests that the labor market remains firm despite signs of weakening,” J.P. Morgan noted.

‘What the bond market is telling us’

The stock market rallied after the presidential election results. Just before close on Wednesday, the Dow Jones Industrial Average had surged more than 1,500 points to a record high. The S&P 500 also popped more than 2%, while the tech-heavy Nasdaq Composite jumped 2.9% — both to record highs.

U.S. bond yields also rose. The 10-year Treasury yield jumped 15 basis points on Wednesday closing to trade at 4.43%, hitting its highest level since July, as investors bet a Trump presidency would increase economic growth, along with fiscal spending.

The yield on the 2-year Treasury was up by 0.073 basis points to 4.276%, reaching its highest level since July 31.

That could be a warning sign, Scanlon said: “I don’t think the inflation story is over yet. That’s what the bond market is telling us.”

Depending on what policies are enacted under Trump’s second term, the inflation problem might get worse, experts say.

“When we see treasury yields rising [and] the possibility of another $7 [trillion] to $10 trillion added to federal debt, those are not anti-inflationary moves, nor are mass deportations,” Hamrick said.

Trump has proposed a 10% to 20% tariff on all imports across the board, as well as a rate between 60% and 100% for goods from China. Such moves “will be inflationary,” Scanlon said. On top of that, his fiscal plan could potentially add $7.75 trillion in spending through fiscal year 2035, according to the Committee for a Responsible Federal Budget.

“Who knows what will actually get passed from this fiscal plan, but massive tax cuts and tariffs … it’s expensive, and the bond market’s telling us that,” she said.

‘Vibecessions’ going forward

According to the National Bureau of Economic Research, a recession is “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” The last time this occurred was in the onset of the pandemic in 2020.

However, it doesn’t necessarily take for these conditions to take place for consumers to feel negative about the economy. It can be “very difficult to square” what people are feeling in their everyday lives versus national averages and medians, experts say.

“There’s still going to be that continued disconnect between how people feel and what the economy is doing,” Scanlon said.

To that point, “the vibecession will endure,” Channel said.

And if consumers end up having to deal with extra costs associated with tariffs every time they go to the grocery store, “the vibes might actually start to get a whole heck of a lot worse,” Channel added.

Personal Finance

There’s still time to lower your 2024 taxes or boost your refund

Published

2 hours ago

February 27, 2025

Business Finance News

Pra-chid | Istock | Getty Images

With tax season well underway, you may be eager for strategies to reduce your 2024 taxes or boost your refund. However, there are limited options, especially for so-called “W-2 employees” who earn wages, experts say.

After Dec. 31, there are “very few” tax moves left for the previous year, according to Boston-area certified financial planner and enrolled agent Catherine Valega, founder of Green Bee Advisory.

Once the calendar year ends, it’s too late to claim a tax break by boosting 401(k) plan deferrals, donating to charity or tax-loss harvesting.

But there are a few opportunities left before the April 15 tax deadline, experts say. Here are three options for taxpayers to consider.

1. Contribute to your health savings account

If you haven’t maxed out your health savings account for 2024, you have until April 15 to deposit money and score a tax break, experts say.

For 2024, the HSA contribution limit is $4,150 for individual coverage or $8,300 for family plans. However, you must have an eligible high-deductible health insurance plan to qualify for contributions.

“The HSA is easy,” said CFP Thomas Scanlon at Raymond James in Manchester, Connecticut. “If you are eligible, fund it and take the deduction.”

2. Make a pre-tax IRA deposit

The April 15 deadline also applies to individual retirement account contributions for 2024. You can save up to $7,000, plus an extra $1,000 for investors age 50 and older.

You can claim a deduction for pre-tax IRA contributions, depending on your earnings and workplace retirement plan.

The strategy lowers your adjusted gross income for 2024, but the account is subject to regular income taxes and required withdrawals later, said CFP Andrew Herzog, associate wealth manager at The Watchman Group in Plano, Texas.

“A traditional IRA simply delays taxation,” he added.

A traditional IRA simply delays taxation.

Andrew Herzog

Associate wealth manager at The Watchman Group

3. Leverage a spousal IRA

If you’re a married couple filing jointly, there’s also a lesser-known option, known as a spousal IRA, which is a separate Roth or traditional IRA for nonworking spouses.

Married couples can max out a pre-tax IRA for both spouses, assuming the working spouse has at least that much income. It’s possible to claim a deduction for both deposits.

But whether you’re making a single pre-tax IRA contribution or one for each spouse, it’s important to weigh long-term financial and tax planning goals, experts say.

Personal Finance

Student loan applications down from Education Dept. website

Published

2 hours ago

February 27, 2025

Business Finance News

Students walk through the University of Texas at Austin on February 22, 2024 in Austin, Texas.

Brandon Bell | Getty Images

The Trump administration has taken down the applications for popular student loan repayments plans from the U.S. Department of Education‘s website, leaving millions of borrowers with fewer options for now.

Borrowers are unable to access the applications for income-driven repayment plans, as well as the online application to consolidate their loans.

Both applications are critical for borrowers pursuing lower monthly payments and loan forgiveness through an IDR plan, as well as the related Public Service Loan Forgiveness program.

The disruption is due to a recent decision by the 8th Circuit Court of Appeals that blocked the Biden administration’s new IDR plan, known as SAVE, or Saving on a Valuable Education, as well as the loan forgiveness component under other IDR plans.

Congress created IDR plans in the 1990s to make borrowers’ bills more affordable. The plans cap borrower’s monthly payments at a share of their discretionary income, and cancel any remaining debt after a certain period, typically 20 years or 25 years.

More than 12 million people were enrolled in the plans as of September 2024, according to higher education expert Mark Kantrowitz.

Here’s what to know about the changes.

Applications could be down for ‘a few months’

The IDR plan applications shouldn’t be down for too long, Kantrowitz said.

“I expect it will be temporary, lasting a few months while they make changes,” he said.

The Education Department is likely tweaking the applications to make sure all their plans comply with the new court order, as well as removing the SAVE plan all together.

The Education Department did not immediately respond to CNBC’s request for comment.

Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit, also didn’t expect a long wait time before the applications return.

“I get the sense the ED is working hard to get the changes made,” Mayotte said.

Impacts of the plans going dark

Unfortunately, there’s nothing federal student loan borrowers who want to sign up for an IDR plan or switch between the plans can do right now, Kantrowitz said.

Borrowers who are due to recertify their IDR plans will also have to sit tight for the time being, Mayotte said. (Those enrolled in IDR plans typically have to submit their income information annually.)

While the legal challenges against SAVE were playing out, the Biden administration put enrollees into an interest-free forbearance. That payment pause is likely to end soon, experts said. By then, borrowers should be able to access other IDR plans, though.

Those who graduate in the spring are typically entitled to a six-month grace period before their first bill is due, Kantrowitz pointed out.

As a result, they won’t need to sign up for a repayment plan until Novemember or December. The plans should be available again by then.

Options if you can’t afford your student loan bill

The disruption to IDR plans will be especially difficult for borrowers who can’t afford their current student loan bill and now can’t access a more affordable option, Mayotte said.

These borrowers can call their loan servicer and explain their situation.

You should first see if you qualify for a deferment, experts say. That’s because your loans may not accrue interest under that option, whereas they almost always do in a forbearance.

Personal Finance

Skipping your tax return amid IRS cutbacks? Penalties can be costly

Published

4 hours ago

February 27, 2025

Business Finance News

Valentinrussanov | E+ | Getty Images

As the IRS faces cutbacks, some taxpayers are weighing whether to file returns this season.

But skipping your federal filing can be costly, experts say.

Josh Youngblood, an enrolled agent and owner of The Youngblood Group, a Dallas-based tax firm, said he’s had a few clients ask whether they need to file this year.

“I’m concerned we’re going to see more of this” amid IRS layoffs and calls to eliminate the agency, he said.

Last week, the IRS faced mass layoffs as Elon Musk’s Department of Government Efficiency, or DOGE, continued to seek federal spending cuts. Meanwhile, Commerce Secretary Howard Lutnick told Fox News that President Donald Trump wants to “abolish” the agency and replace it with tariffs.

The uncertainty could contribute to taxpayers’ filing delays.

As of Feb. 14, the IRS received about 5% fewer individual returns compared to about the same point last season, according to the agency’s latest filing statistics.

Penalties for ‘tax protestors’ can be hefty

There are various reasons why some taxpayers don’t file returns, according to Syracuse University law professor Robert Nassau, director of the school’s low-income tax clinic.

In some cases, they may think “[the IRS is] never going to find me” or “they’re frightened and overwhelmed by the prospect of owing money,” he said.

Another category of non-filers or filers who deliberately underpay, known as “tax protestors,” argue federal taxes are unconstitutional or don’t apply to them, said certified public accountant Mark Kohler.

“There’s this whole laundry list of weird arguments that never work,” he said.

Tax protestors issues can lead to tax court and penalties can be hefty, experts say.

If you file a return without enough information to calculate the correct tax liability, you could be subject to a $5,000 civil penalty for filing a “frivolous tax return,” according to the Internal Revenue Code.

“Like moths to a flame, some people find themselves irresistibly drawn to the tax protester movement’s illusory claim that there is no legal requirement to pay federal income tax. And, like moths, these people sometimes get burned,” a circuit judge wrote in United States v. Sloan.

Avoid the ‘failure to file’ penalty

Whether you’re protesting the government or avoiding taxes owed, non-filers can expect IRS penalties, experts say.

The “failure to file” penalty is 5% of your taxes owed per month or partial month the filing is late, capped at 25%, according to the IRS.

That’s “ten times worse” than the “failure to pay” penalty, which is levied at 0.5% of your tax balance per month or partial month, also limited to 25%, Nassau explained.