Personal Finance
Vance, Trump double down on presidential influence on Fed policy
Republican presidential candidate former President Donald Trump speaks during a press conference at his Mar-a-Lago estate on August 08, 2024, in Palm Beach, Florida.
Joe Raedle | Getty Images
When it comes raising and lowering interest rates, Republican presidential nominee Donald Trump says the president should “at least have a say.”
“They’ve gotten it wrong a lot,” Trump said of the Federal Reserve‘s decision-making during a news conference on Thursday at his Mar-a-Lago residence in Florida.
“In my case, I made a lot of money, I was very successful, and I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman,’ Trump said.
Sen. JD Vance of Ohio, the Republican vice presidential nominee, echoed this opinion in a CNN interview that aired on Sunday, saying that interest rate policy “should fundamentally be a political decision.”
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Also over the weekend, Vice President Kamala Harris told reporters in Arizona that she “couldn’t… disagree more strongly” with Trump’s suggestion that the president should have a voice in the central bank’s monetary policy moves.
“The Fed is an independent entity, and as president, I would never interfere in the decisions that the Fed makes,” Harris said.
The president has no direct control over interest rates
As it stands, the president exerts no direct control over interest rates. The Federal Reserve sets interest rates, and it operates independently of the White House.
“While the Fed’s day-to-day operations are intentionally removed from partisan political input to protect the central bank’s integrity, the Fed and its conduct of monetary policy remain democratically accountable,” said Brett House, economics professor at Columbia Business School.
Through the Federal Reserve Act, the legislative and executive branches of the government set the mandate of the Fed to promote maximum employment, keep prices stable and ensure moderate long-term interest rates, House explained.
“If a president wants to change this mandate, they always have the option to marshal support in Congress for an amendment of the act or new legislation,” he added.
However, this is not the first time Trump has contested that the relationship between the executive branch and the Fed shouldn’t necessarily work that way.
Last month, Trump said, if elected, he would “bring interest rates way down.”
Inflation and high interest rates are “destroying our country,” the Republican presidential nominee said at the National Association of Black Journalists‘ annual convention in Chicago.
“I bring inflation way down, so people can buy bacon again, so people can buy a ham sandwich again, so that people can go to a restaurant and afford it,” he said.
A rate cut is coming
Inflation has been a persistent problem since the Covid-19 pandemic, when price increases soared to their highest levels in more than 40 years. The Fed responded with a series of rate hikes to effectively pump the brakes on the economy in an effort to get inflation under control.
The federal funds rate, which sets overnight borrowing costs for banks but also influences consumer borrowing costs, is currently targeted in a range of 5.25% to 5.50%, the result of 11 rate increases between March 2022 and July 2023.
Now, recent economic data indicates that inflation is falling back toward the Fed’s 2% target, paving the way for the central bank to lower its benchmark rate for the first time in years. The personal consumption expenditures price index — the Fed’s preferred inflation gauge — showed a rise of 2.5% year over year in June.
Markets have fully priced in the likelihood of at least a quarter percentage point rate cut in September and a strong likelihood that the Fed will lower by a full percentage point by the end of the year.
Once the fed funds rate comes down, consumers may see their borrowing costs start to fall as well.
Trump has a contentious history with the Fed
Trump, who nominated Jerome Powell to head of the nation’s central bank in 2018, has been advocating for lower rates for years. The former president was a fierce critic of the Fed chief and his colleagues while he was in the Oval Office, skirting historical precedent by repeatedly and publicly berating the Fed’s decision-making.
During that time, Trump complained that the central bank maintained a fed funds rate that was too high, making it harder for businesses and consumers to borrow and putting the U.S. at an economic disadvantage to countries with lower rates.
Ultimately, though, Trump’s comments had no impact on the Fed’s benchmark.
“Any chairman is going to remain loyal to the Fed’s mandate over any browbeating from the White House,” House said.
Now, however, Trump has cautioned against the Fed lowering rates shortly before the presidential election in November.
Trump told Bloomberg Businessweek in an interview in July that cutting rates in September, just weeks ahead of the election is “something that [central bank officials] know they shouldn’t be doing.”
Earlier this year, the former president also told Fox Business that he would not reappoint Powell to lead the Fed.
“I think he’s political,” Trump said. “I think he’s going to do something to probably help the Democrats, I think, if he lowers interest rates.”
When asked about these comments during a press conference after the FOMC meeting last month, Powell underscored the Fed’s singular focus on the economy.
“We don’t change anything in our approach to address other factors like the political calendar,” Powell said. “We never use our tools to support or oppose a political party, a politician or any political outcome.”
According to Greg McBride, chief financial analyst at Bankrate.com, “the Fed’s independence will remain paramount — regardless of who is president.”
A ‘consequential year’ for monetary policy
The central bank is an independent agency that governs decisions about monetary policy without interference from the president or any branch of government. Therefore, it is theoretically free from political pressure.
Still, the stakes are high in 2024.
In January, Fed Chair Powell said at a press conference that this was going to be “a highly consequential year for, for the Fed and for monetary policy.”
In the months that followed, signs of economic growth and cooling inflation laid the groundwork for a widely anticipated rate cut, which is welcome news for Americans struggling to keep up with sky-high interest charges.
After July’s Federal Open Market Committee meeting, Powell said that central bankers would cut rates as soon as September, if the economic data supports it.
How the Fed adjusts policy during election years
In previous presidential election years, the Fed has maintained its charted course through the election, whether that was tightening as in 2004, cutting in 2008 or remaining on hold as in 1996, 2012 and 2020, according to a research report by Wells Fargo released in February.
Further, since 1994, the Fed adjusted its policy rate roughly the same number of times in presidential election years as in non-election years, the report said.
A separate research note by Barclays also found “no compelling statistical evidence that Federal Reserve policy is conducted differently during presidential elections.”
“The Fed’s independence will remain paramount,” McBride said. Going forward, “what will influence what the Fed does is what is happening in the broader economy.”
And yet, Fed board members are nominated by the president and must be approved by the Senate. Powell will conclude his second four-year stretch as chair in 2026 — opening the door to a potential change in leadership — and, possibly, the direction of monetary policy — smack in the middle of the next presidential term.
The Trump campaign did not respond to CNBC’s request for comment.
Personal Finance
Biden signs Social Security bill to increase benefits for millions of public workers
Lordhenrivoton | E+ | Getty Images
If you’re eager to save more for retirement, you could be overlooking ways to maximize your 401(k) plan, including key changes for 2025.
Some 40% of Americans are behind on retirement planning and savings, according to a CNBC poll conducted by SurveyMonkey, which polled 6,657 U.S. adults in August.
But before making 401(k) plan changes, experts say you should always review your financial situation, including your income, immediate spending needs and goals.
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“401(k) investing focuses on long-term retirement goals,” said certified financial planner Salim Boutagy, partner at Moneco Advisors in Fairfield, Connecticut. But it should work alongside other savings that cover your midterm goals, emergencies and immediate spending needs.
If you’re ready to boost retirement savings, here are some key things to know about your 401(k) for 2025.
Use higher 401(k) contribution limits as a ‘prompt’
Starting in 2025, employees can defer $23,500 into 401(k) plans, up from $23,000 in 2024. The catch-up contribution limit remains at $7,500 for investors age 50 and older.
“This higher ceiling isn’t just a win for high earners,” said CFP Jon Ulin, managing principal of Ulin & Co. Wealth Management in Boca Raton, Florida. “It’s a prompt for everyone to consider boosting their savings rate,” Ulin added.
Even 1% yearly increases “can make a substantial difference” thanks to compound growth over time, he said.
The retirement plan savings rate for the third quarter of 2024, including employee deferrals and company contributions, was an estimated 14.1% as of Sept. 30, according to Fidelity Investments, based on an analysis of 26,000 corporate plans.
Leverage the 401(k) ‘super max catch-up’
On top of higher 401(k) deferral limits, there is also a new “super max catch-up” opportunity for some older investors in 2025, said CFP Dinon Hughes, a greater Boston area-based financial consultant with Nvest Financial.
If you are between the ages of 60 and 63 in 2025, the catch-up contribution limit increases to $11,250, which brings the total deferral cap to $34,750 for this group.
Only about 14% of employees maxed out 401(k) plans in 2023, according to Vanguard’s 2024 How America Saves report, based on data from 1,500 qualified plans and nearly five million participants.
However, there is “one major caveat,” Hughes said.
Your 401(k) must allow the increased catch-up contributions. Otherwise, payroll could flag the added funds as excess 401(k) deferrals, he said. There can be tax consequences if excess deferrals are not removed.
“Check with your employer now to avoid a much bigger headache at the end of 2025,” Hughes said.
Check for ‘true up’ before maxing out early
Generally, experts recommend investing sooner to boost compound growth over time. But you could lose part of your employer’s matching contribution by maxing out your 401(k) early — unless your plan has a special feature.
Typically, your employer’s 401(k) match uses a formula to deposit extra money into your account. You must defer a certain percentage of income from each paycheck to receive your full employer match for the year.
Some plans offer a “true-up,” or deposit of the remaining employer match, for employees who max out their 401(k) plan before year-end.
If your plan offers this feature, it’s a green light to contribute aggressively in January, maximizing market exposure from day one.
Jon Ulin
Managing principal of Ulin & Co. Wealth Management
“If your plan offers this feature, it’s a green light to contribute aggressively in January, maximizing market exposure from day one,” Ulin said.
Some 67.4% of plans made true-up matches when matches were not made annually in 2023, according to the Plan Sponsor Council of America’s latest yearly survey. The feature is most common in larger plans.
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Retirees can expect to see some big changes in 2025 when it comes to their Social Security and Medicare benefits.
President Joe Biden is expected to sign a bill that will increase Social Security benefits for certain pensioners. Additionally, the annual Social Security cost-of-living adjustment goes into effect for all beneficiaries.
And Medicare enrollees who are worried about health-care costs now have a $2,000 annual out-of-pocket Part D prescription drug cap aimed at helping to reduce those financial pressures.
Here are some important changes to note for the coming year.
Some pensioners could get benefit increase
The Senate passed a bill in the final legislative days of 2024 to boost Social Security payments for millions of people who receive pensions from work in federal, state and local government, or in public service jobs such as teachers, firefighters and police officers. The House had passed the bill in November.
Now, Biden is expected to sign the bill into law in the coming days.
The Social Security Fairness Act eliminates two provisions that reduce Social Security benefits for certain individuals who also have pension income from public work where Social Security payroll taxes were not paid.
That includes the Windfall Elimination Provision, or WEP, which reduces Social Security benefits for individuals who also receive pension or disability benefits from employers who did not withhold Social Security taxes.
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It also includes the Government Pension Offset, or GPO, which reduces Social Security benefits for spouses, widows and widowers who receive their own government pensions.
Together, the rules affect around 2.5 million beneficiaries, according to the Congressional Research Service. Once enacted, the law may provide higher benefit payments to those individuals.
Notably, it may provide retroactive payments of those benefit increases for the months after December 2023.
The legislation marks the biggest change to Social Security since certain couples claiming strategies were phased out in 2016, said Martha Shedden, president of the National Association of Registered Social Security Analysts.
“We’re sort of in limbo as to how that process will proceed, when people will see that increase and how the retroactive [benefits] will be applied,” Shedden said.
All Social Security beneficiaries to get 2.5% COLA
In 2025, all beneficiaries will see a 2.5% increase to their Social Security benefit checks, thanks to an annual cost-of-living adjustment.
Of note, the 2024 increase was 3.2%. This year’s COLA is the lowest increase beneficiaries have seen since a 1.3% increase in 2021, reflecting a decrease in the pace of inflation.
The change will be effective with January checks for more than 72.5 million Americans, including Supplemental Security Income beneficiaries.
The average worker retirement benefit will be $1,976 per month, up from $1,927 in 2024, according to the Social Security Administration.
Monthly Medicare Part B premiums go up
Monthly Medicare Part B premiums — which are often deducted directly from Social Security checks — may affect just how much of a bump beneficiaries see in their 2025 benefit payments.
Medicare Part B covers physician, outpatient hospital and certain home health services, as well as durable medical equipment.
In 2025, the standard monthly Part B premium will be $185 per month — a $10.30 increase from $174.70 in 2024.
Part B deductibles will also rise, to $257, in 2025 — a $17 increase from the $240 annual deductible for 2024.
Medicare Part B premiums are based on a beneficiary’s modified adjusted gross income, or MAGI, from their tax returns from two years prior. In 2025, beneficiaries who had less than or equal to $106,000 in MAGI in 2023 will pay the standard monthly Part B premium, as will married couples with less than or equal to $212,000.
Beneficiaries with higher incomes will be subject to income-related adjustment amounts, or IRMAA, that increase their monthly premium payments.
Medicare $2,000 prescription drug cap goes into effect
Annual out-of-pocket Medicare Part D drug costs will now be capped at $2,000, as changes enacted with the Inflation Reduction Act go into effect.
Beneficiaries with Medicare Part D drug plans that have a deductible will pay out-of-pocket costs until that threshold is met. In 2025, the highest deductible for those plans is $590.
Once beneficiaries pay their full deductible, they will owe 25% of the cost of coinsurance until their out-of-pocket spending on both generic and brand-name drugs reaches $2,000. After that, those beneficiaries will have what’s known as catastrophic coverage, which means they won’t be on the hook to pay out-of-pocket Part D costs for the rest of 2025.
However, beneficiaries will also have the option to pay out-of-pocket costs monthly over the course of the year, instead of all at once.
Notably, insulin costs have also been capped at $35 per month, both under Medicare Part D covered treatments and Medicare Part B covered insulin used with pumps.
Social Security trust fund depletion dates get closer
In 2024, the Social Security trustees projected the trust fund the program relies on to help pay retirement benefits may be depleted in 2033. At that time, just 79% of those benefits may be payable, unless Congress acts sooner.
Social Security’s combined trust funds — used to pay both retirement and disability benefits — are projected to run out in 2035.
Now that the calendar has turned to a new year, those depletion dates are closer.
Notably, the previously mentioned Social Security Fairness Act that will provide increased benefits to some pensioners may move the trust fund depletion date six months closer.
“That’s the major looming issue right now, is what can be done to shore up those trust funds,” Shedden said. “That’s going to require very comprehensive, bipartisan changes to multiple parts of the Social Security rules in the program.”
However, most financial advisors emphasize that shouldn’t affect personal claiming decisions.
For younger generations, there could be changes to future benefits, said George Gagliardi, a certified financial planner and founder of Coromandel Wealth Strategies in Lexington, Massachusetts.
“But for those already receiving or about to get Social Security checks, I don’t think that there is anything to worry about,” Gagliardi said.
Other important changes to note
- Maximum taxable earnings — the amount of wages subject to Social Security payroll taxes — will rise to $176,100 in 2025, up from $168,600 in 2024. Once workers hit that cap, they no longer pay into the program for the rest of the year.
- Social Security beneficiaries who claim benefits before their full retirement age and who continue to work face what is known as a retirement earnings test. The earnings exempt from the retirement earnings test is now $23,400 per year in 2025 for those under full retirement age, up from $22,320 per year in 2024. For every $2 in earnings above the limit, $1 in benefits is withheld. For the year an individual reaches retirement age, a higher threshold of $62,160 in earnings applies, up from $59,520 in 2024. For every $3 in earnings above the limit, $1 in benefits is withheld. Of note: this only applies to the months before a beneficiary turns full retirement age. Starting from their birthday month, the retirement earnings test no longer applies. Importantly, once a beneficiary reaches full retirement age, any previously withheld benefits are applied to monthly benefits.
- Do you want to talk to the Social Security Administration face to face? Starting Jan. 6, the agency is requiring appointments for local office services, such as obtaining Social Security cards. To improve efficiency, the agency is directing individuals who need help to first try its online or automated telephone services. However, people who are unable to schedule in-person appointments, particularly vulnerable individuals, may still come in and get in-person service.
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