Tag Archives: Economy

CBO’s Updated Projections of the Hospital Insurance Trust Fund’s Finances

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https://www.cbo.gov/publication/62165?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

The Congressional Budget Office regularly updates the Congress on our projections of the Hospital Insurance (HI) Trust Fund’s financial position as well as changes in our outlook on that position. This blog post serves as that update.

The HI trust fund is used to pay for benefits under Medicare Part A, which covers inpatient hospital services, care provided in skilled nursing facilities, home health care, and hospice care. The fund derives its income from several sources. Over the next 30 years, about three-quarters of its annual income comes from the Medicare payroll tax and roughly one-eighth comes from income taxes on Social Security benefits. The rest comes from other sources.

Budget Projections

We estimate that the HI trust fund’s balance is exhausted in 2040. The balance generally increases through 2031, but spending begins to outstrip income in the following year.

That projection is based on our demographic projections published in January 2026, our economic and 10-year budget projections published on February 11, 2026, and our long-term budget projections that extend those earlier projections. It does not account for any effects, including effects on the economy or the budget, of the Supreme Court’s ruling on tariffs on February 20, 2026 (Learning Res., Inc. v. Trump, Nos. 24-1287, 25-250, slip op. (S. Ct. Feb. 20, 2026)).

As required by the Deficit Control Act, our projections reflect the assumption that benefits would be paid as scheduled even after the HI trust fund was exhausted. If the balance of the fund was exhausted and the fund’s spending continued to outstrip its income, total payments to health plans and providers for services covered under Part A would be limited by law to the amount of income credited to the fund. Total benefits would need to be reduced (in relation to the amounts in our baseline projections) by an amount that rises from 8 percent in 2040 to 10 percent in 2056, we estimate. It is unclear what changes the Centers for Medicare & Medicaid Services would make to operate the Part A program under those circumstances.

We estimate that the HI trust fund’s actuarial balance measured over a 25-year period is negative: an actuarial deficit of 0.30 percent of taxable payroll (or 0.13 percent of gross domestic product, or GDP).

The actuarial balance is a single number that summarizes the fund’s current balance and annual future streams of revenues and outlays over a certain period. It is the sum of the present value of projected income and the current trust fund balance minus the sum of the present value of projected outlays and a year’s worth of benefits at the end of the period. A present value is a single number that expresses a flow of current and future income or payments in terms of an equivalent lump sum received or paid today. And taxable payroll is the total amount of earnings—wages and self-employment income—subject to the payroll tax.

To eliminate the actuarial deficit, lawmakers would need to take action. They could increase taxes, reduce payments, transfer money to the trust fund, or take some combination of those approaches. The estimated size of the change needed—0.30 percent of taxable payroll—excludes the effects of changes in taxes or spending on people’s behavior and the economy. Those effects, which would depend on the specifics of the policy change, would alter the size of the tax increase, benefit reduction, or transfer needed to eliminate the actuarial deficit.

Changes in Our Projections Since March 2025

The year in which the HI trust fund’s balance is exhausted in our current projections, 2040, is 12 years earlier than in our most recent estimate of that date, which was published in March 2025. Measured in relation to taxable payroll, the trust fund’s 25-year actuarial deficit is 0.17 percentage points greater in the current projections than in last year’s. (Measured in relation to GDP, the actuarial deficit is 0.07 percentage points greater than we projected last year.) Those changes are driven largely by projections of less income to the fund. Projections of greater spending also contribute to the changes.

Our projections of income to the HI trust fund are less this year than last year for three main reasons:

  • First, revenues from taxing Social Security benefits are smaller in the current projections because of changes put in place by the 2025 reconciliation act (Public Law 119-21), which lowered tax rates and created a temporary deduction for taxpayers age 65 or older.
  • Second, we decreased our projections of revenues from payroll taxes to account for projections of lower earnings.
  • Finally, we now project interest income credited to the trust fund to be smaller than estimated last year because of the smaller trust fund balances in this year’s projections.

Spending is projected to be greater mainly because of an increase in expected spending per enrollee. Per-enrollee spending in Medicare Part A’s fee-for-service program in 2025 and bids in 2026 by providers of Medicare Advantage plans were both higher than we expected, leading to projections of greater per-enrollee spending in both programs.

Projections of the HI trust fund’s balances are sensitive to small changes in projections of its spending and income. As a result, those estimates are highly uncertain.

Government Reports on Healthcare require a Closer Look

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Government Reports on Healthcare require a Closer Look

Last week, the Federal Government released agency reports that paint a perplexing picture for the health industry entering 2026:

Tuesday, The Bureau of Labor Statistics released the EMPLOYMENT COST INDEX SUMMARY noting “Compensation costs for civilian workers increased 0.7%, seasonally adjusted, for the 3-month period ending in December 2025 and 3.4% for the 12-month period ending December, 2025.” Closer look: it was +3.6% for hospitals and +3.2% for nursing homes.

Employment Cost Index Summary – 2025 Q04 Results

Wednesday, the Bureau of Labor Statistics released THE EMPLOYMENT SITUATION — JANUARY 2026: “Total nonfarm payroll employment rose by 130,000 in January, and the unemployment rate changed little at 4.3%… Job gains occurred in health care, social assistance, and construction, while federal government and financial activities lost jobs…Health care added 82,000 jobs in January, with gains in ambulatory health care services (+50,000), hospitals (+18,000), and nursing and residential care facilities (+13,000). Job growth in health care averaged 33,000 per month in 2025. Employment in social assistance increased by 42,000 in January, primarily in individual and family services (+38,000).” Closer look: the jobs report is based on employer sampling which is revised as subsequent surveys are added to the sample. Thus, data for any single month is at best only directionally accurate. Reliable federal data about the healthcare workforce remains a work in process.

Employment Situation Summary – 2026 M01 Results

Friday, BLS released the CONSUMER PRICE INDEX REPORT FOR JANUARY, 2026: “Consumer prices rose 2.4% in January from a year earlier down from 2.7% in December.” Core prices, which exclude volatile food and energy items, rose 2.5% from a year earlier vs. medical care commodities (+.3%), hospital services (+6.6%) and physician services (+2.1%). Closer look: prices for hospitals and physicians vary widely (by ownership, specialty, size and location) but differ in one respect: Medicare rates are used as a proxy for both, but rate setting for physicians disallows inflationary adjustments.   

Consumer Price Index February 13, 2026 https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category.htm#

Taken together, they reflect the obvious: The healthcare economy is a big deal in the scheme of the overall economy and the nation’s monetary policy. The CBO’s revised projection shows it increasing from 18% of the GDP today to 20.3% by 2033.

But a closer look exposes worrisome signals in the reports:

  • Increased housing costs are destabilizing lower-and-middle income household finances resulting in increased medical debt, delayed care and heightened sensitivity to healthcare affordability. It also has direct impact on the availability of the local workforce where home ownership or rental costs are out of reach.
  • Hospital price increases used to offset escalating labor and supply chain costs are well-above other spending categories; some have healthy margins while others are struggling. Public perception about hospital finances is susceptible to misinformation and executive compensation is a lightning rod for detractors. Per a KFF report last week, hospitals accounted for a third of total health spending increases since 2023 but 40% of the total spending increase—higher than any other factor. That puts added pressure on hospitals to justify costs and account for prices.
  • The healthcare workforce has become the backbone of the labor market: the majority of its expanded labor pool are skilled and unskilled hourly workers for whom competitive wages and benefits are key. Healthcare delivery is labor intense. Across all settings in healthcare, efforts to increase productivity via data-driven, technology-dependent process improvements have been made. But reimbursements by payers have punished improvements in productivity requiring more work for less money. The result: disenchantment about the future of the system is a tsunami in the healthcare workforce.

In every hospital, medical group nursing home and home care organization, pressure to attract and keep a viable workforce is mission critical. In some, the Human Resource function is effectively aligned with regulatory, clinical and technology changes, in some, compensation plans from executive to support are strategically designed to optimize short and long-term performance and ROI. In some, the Board Compensation committee is well-prepared to adjust policies as talent requirements change. In some, leaders and frontline teams show mutual respect and sincere appreciation. But many fall short.

These reports are public record. But their headline stats don’t tell a complete story. Every healthcare organization is obligated to do the rest.

CMS’ 2024 Health Spending Report: Key Insights

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CMS’ 2024 Health Spending Report: Key Insights

As media attention focused on Minneapolis, Greenland and Venezuela last week, the Center for Medicaid and Medicare Services (CMS) released its 2024 Health Expenditures report Thursday: the headline was “Health care spending in the US reached $5.3 trillion and increased 7.2% in 2024, similar to growth of 7.4% in 2023, as increased demand for health care influenced this two-year trend. “

Less media attention was given two Labor Department reports released the Tuesday before:

  • Prices: The consumer-price index (CPI) for December came in somewhat higher than expected with an increase of 0.3% and 2.7% over the past 12 months. Overall inflation isn’t rising, but it also isn’t coming down.
  • Wages: The Labor Department reported average hourly earnings after inflation in the last year rose 0.7% during the first five months of this year, but real hourly earnings have declined 0.2% since May. They’re stuck.

Prices are increasing but wages for most hourly workers aren’t keeping pace. That’s why affordability is the top concern for voters.

Meanwhile, the health economy continues to grow—no surprise.  It’s a concern to voters only to the extent it’s impacting their ability to pay their household bills. They don’t care or comprehend a health economy that’s complex and global; they care about their out-of-pocket obligations and surprise bills that could wipe them out.

As Michael Chernow, MedPAC chair and respected Harvard Health Policy professor wrote:

“The headline number, 7.2% growth in 2024, is concerning but hardly a surprise. It follows 7.4% growth in 2023. This rate of NHE growth is not sustainable. It exceeds general inflation and growth in the gross domestic product (GDP), pushing the share if GDP devoted to health care spending to 18%  in 2024; the share of GDP devoted to health care is projected to rise to 20.3% by 2033. In fact, these figures may be an underestimate of the fiscal burden of the health care system because spending on some things, such as employer administrative costs, are not captured… Given all the attention to prices and insurer profits, it is important to note that those factors are not the main drivers of spending growth—this time, it’s not the prices, stupid. There was virtually no excess medical inflation (medical inflation above general inflation) for 2023 or 2024. In fact, prices for retail drugs (net of rebates) rose at a rate below inflation. There will certainly be cases of rising prices driving spending, but on average, price growth is not the problem. This does not mean high-priced products and services are not an important component of spending growth, but instead it implies that their contribution to spending growth on average stems from their greater use, not rising prices. The main driver of spending growth is greater volume and intensity of care…”

My take:

Since 2000 to 2024, total healthcare spending in the U.S. has been volatile:

  • 2000–2007: High growth, typically 6–8% per year (driven by rising utilization and prices).
  • 2008–2013: Growth slowed to 3–4% during and after the Great Recession.
  • 2014–2016: Growth ticked up to 4.5–5.8% with ACA coverage expansion.
  • 2017–2019: Moderation around 4.5%.
  • 2020: COVID‑19 shock—growth slowed to ~2% due to deferred care.
  • 2021: Rebound to ~4%.
  • 2022: 4.8%, close to pre‑pandemic norms.
  • 2023: 7.4%, fastest since 1991–92.
  • 2024: 7.2%, reaching $5.3 trillion (18% of GDP)

Between 2000 and 2024, total health spending in the U.S. increased $3.9 trillion (279%) while the U.S. population grew by 58 million (20.4%). 2025 spending is expected to follow suit. The underlying reason for the disconnect between health spending and population growth is more complicated than placing blame on any one sector or trend: it’s true in the U.S. and every other developed system in the world. Healthcare is expensive and it’s costing more.

This is good news if you’ve made smart bets as an investor in the health industry but it’s problematic for just about everyone else including many in the industry who’ve benefited from its aversion to spending controls and cost cutting.

The current environment for the healthcare economy is increasingly hostile to the status quo. Voters think the system is wasteful, needlessly complicated and profitable. Lawmakers think it’s no man’s land for substantive change, defaulting to price transparency, increased competition and state regulation in response. Private employers, who’ve bear the brunt of the system’s ineffectiveness, are timid and reformers are impractical about the role of private capital in the health economy’s financing.

The healthcare economy will be an issue in Campaign 2026 not because aggregate spending increased 7-8% in 2025 per CMS, but because it’s no longer justifiable to a majority of Americans for whom it’s simply not affordable. Regrettably, as noted in Corporate Board Member’s director surveys, only one in five healthcare Boards is doing scenario planning with this possibility in mind.

P.S. The President released his Great Healthcare Plan last Thursday featuring his familiar themes—price transparency for hospitals and insurers, most favored pricing and elimination of PBMs to reduce prescription drug costs—along with health savings accounts for consumers in lieu of insurance subsidies. The 2-page White House release provided no additional details.

Companies are tired of absorbing tarifffs

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https://www.axios.com/newsletters/axios-macro-b58c6840-0108-11f1-ab61-6f9a2442ad79.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosmacro&stream=business

Businesses that held the line on tariff-related price increases last year might be passing more of those costs on to consumers at the start of 2026.

Why it matters: 

The Trump administration is celebrating how little its huge levies have impacted inflation. But new signs indicate the policies are appearing with a lag, complicating their push to address affordability concerns.

Zoom out: 

Many companies reassess pricing at the start of the year — one factor that historically makes January a month of above-average price increases.

  • Tariffs could be supercharging that historic trend: Companies might finally be raising prices to address the costs they ate throughout much of last year.
  • Adobe’s Digital Price Index rose by the most, month on month, in its 12-year history in January — even faster than at the height of the inflation shock in 2022.
  • “The strong increase could be a sign of greater tariff pass-through to start off the new year,” with large price changes for electronics, furniture, bedding and appliances, economists at UBS wrote in a note.

Yes, but: 

The bank’s economists caution that the series can be volatile, and it was down sharply in November, so it could be a head fake.

State of play: 

Official government inflation data for January is not scheduled to be released until next week, pending a government shutdown. Still, there’s other evidence that January could be a spicy month for price hikes.

  • The Institute for Supply Management’s manufacturing survey sub-index for prices ticked up to 59 in January, from 58.5, the highest since September.

Zoom in: 

While there is still caution that higher prices could crimp demand, several references in the Federal Reserve’s compilation of anecdotal information from across the U.S. point to price increases in the new year.

  • In Atlanta, for instance, “many contacts expect to implement price increases in the first half of 2026 to preserve margins, especially those who held prices steady in 2025,” according to the most recent Beige Book.
  • The Philadelphia Fed notes that many businesses anticipated “tariffs to seep into general price levels.”

In a speech this morning, Richmond Fed president Tom Barkin said that he has spoken with about 75 companies since the start of the year, and described a dynamic within companies regarding price-setting.

  • “In boardrooms around the country, sales and finance teams are debating how aggressively to increase prices, for example, in the context of increased tariff-driven input costs,” Barkin said.
  • “If I can stereotype: Sales doesn’t want to pass through those costs at the risk of lost volume; finance doesn’t want to eat the cost at the risk of reduced margins,” Barkin said.
  • “I imagine some finance teams have done well recently (at least based on the increases I’ve seen in my streaming services and homeowners insurance),” he added.

What they’re saying: 

“The Fed is telling us, ‘Don’t worry, the inflationary effects of [tariffs] will subside,’ but I am a little bit skeptical of that,” James Knightley, chief international economist at ING, told reporters in Washington, D.C., this morning.

  • “I do get the sense that there is some delay related to the Supreme Court decision — a lot of companies are hoping it will just disappear,” Knightley said, referring to a pending decision about the legality of the bulk of President Trump’s tariffs.
  • “There is a risk that costs end up getting passed along to you and I in time … it just will come through more slowly,” Knightley said.

CMS’ 2024 Health Spending Report: Key Insights

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CMS’ 2024 Health Spending Report: Key Insights

As media attention focused on Minneapolis, Greenland and Venezuela last week, the Center for Medicaid and Medicare Services (CMS) released its 2024 Health Expenditures report Thursday: the headline was “Health care spending in the US reached $5.3 trillion and increased 7.2% in 2024, similar to growth of 7.4% in 2023, as increased demand for health care influenced this two-year trend. “

Less media attention was given two Labor Department reports released the Tuesday before:

  • Prices: The consumer-price index (CPI) for December came in somewhat higher than expected with an increase of 0.3% and 2.7% over the past 12 months. Overall inflation isn’t rising, but it also isn’t coming down.
  • Wages: The Labor Department reported average hourly earnings after inflation in the last year rose 0.7% during the first five months of this year, but real hourly earnings have declined 0.2% since May. They’re stuck.

Prices are increasing but wages for most hourly workers aren’t keeping pace. That’s why affordability is the top concern for voters.

Meanwhile, the health economy continues to grow—no surprise.  It’s a concern to voters only to the extent it’s impacting their ability to pay their household bills. They don’t care or comprehend a health economy that’s complex and global; they care about their out-of-pocket obligations and surprise bills that could wipe them out.

As Michael Chernow, MedPAC chair and respected Harvard Health Policy professor wrote:

“The headline number, 7.2% growth in 2024, is concerning but hardly a surprise. It follows 7.4% growth in 2023. This rate of NHE growth is not sustainable. It exceeds general inflation and growth in the gross domestic product (GDP), pushing the share if GDP devoted to health care spending to 18%  in 2024; the share of GDP devoted to health care is projected to rise to 20.3% by 2033. In fact, these figures may be an underestimate of the fiscal burden of the health care system because spending on some things, such as employer administrative costs, are not captured… Given all the attention to prices and insurer profits, it is important to note that those factors are not the main drivers of spending growth—this time, it’s not the prices, stupid. There was virtually no excess medical inflation (medical inflation above general inflation) for 2023 or 2024. In fact, prices for retail drugs (net of rebates) rose at a rate below inflation. There will certainly be cases of rising prices driving spending, but on average, price growth is not the problem. This does not mean high-priced products and services are not an important component of spending growth, but instead it implies that their contribution to spending growth on average stems from their greater use, not rising prices. The main driver of spending growth is greater volume and intensity of care…”

My take:

Since 2000 to 2024, total healthcare spending in the U.S. has been volatile:

  • 2000–2007: High growth, typically 6–8% per year (driven by rising utilization and prices).
  • 2008–2013: Growth slowed to 3–4% during and after the Great Recession.
  • 2014–2016: Growth ticked up to 4.5–5.8% with ACA coverage expansion.
  • 2017–2019: Moderation around 4.5%.
  • 2020: COVID‑19 shock—growth slowed to ~2% due to deferred care.
  • 2021: Rebound to ~4%.
  • 2022: 4.8%, close to pre‑pandemic norms.
  • 2023: 7.4%, fastest since 1991–92.
  • 2024: 7.2%, reaching $5.3 trillion (18% of GDP)

Between 2000 and 2024, total health spending in the U.S. increased $3.9 trillion (279%) while the U.S. population grew by 58 million (20.4%). 2025 spending is expected to follow suit. The underlying reason for the disconnect between health spending and population growth is more complicated than placing blame on any one sector or trend: it’s true in the U.S. and every other developed system in the world. Healthcare is expensive and it’s costing more.

This is good news if you’ve made smart bets as an investor in the health industry but it’s problematic for just about everyone else including many in the industry who’ve benefited from its aversion to spending controls and cost cutting.

The current environment for the healthcare economy is increasingly hostile to the status quo. Voters think the system is wasteful, needlessly complicated and profitable. Lawmakers think it’s no man’s land for substantive change, defaulting to price transparency, increased competition and state regulation in response. Private employers, who’ve bear the brunt of the system’s ineffectiveness, are timid and reformers are impractical about the role of private capital in the health economy’s financing.

The healthcare economy will be an issue in Campaign 2026 not because aggregate spending increased 7-8% in 2025 per CMS, but because it’s no longer justifiable to a majority of Americans for whom it’s simply not affordable. Regrettably, as noted in Corporate Board Member’s director surveys, only one in five healthcare Boards is doing scenario planning with this possibility in mind.

Paul

P.S. The President released his Great Healthcare Plan last Thursday featuring his familiar themes—price transparency for hospitals and insurers, most favored pricing and elimination of PBMs to reduce prescription drug costs—along with health savings accounts for consumers in lieu of insurance subsidies. The 2-page White House release provided no additional details.

The health care hiring boom is losing steam

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https://www.axios.com/2026/01/26/health-care-hiring-boom-job-growth-stalls?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

The health care job growth that’s powered the labor market since the COVID pandemic is stalling out.

Why it matters: 

Republican cuts to federal health programs, AI automation and rising costs are making health systems and other employers level off hiring — including for jobs requiring a professional license like nurses or physical therapists.

  • The results could widen gaps in care and exacerbate health disparities.

By the numbers: 

Health care employment drove most of the month-by-month job growth last year, increasing by an average of 34,000 jobs per month, according to the Bureau of Labor Statistics.

  • But that’s less than health care’s monthly average increase of 56,000 roles in 2024.

Health care hiring has essentially returned to a pre-pandemic pattern of slower growth after a post-COVID surge driven by returning patients and hospitals replacing burned-out workers, said Neale Mahoney, an economics professor at Stanford.

  • “It was only a question of when … and we’re starting to see it now,” Mahoney said.

Federal policy changes could further chill hiring.

  • Hospitals face financial pressure from the nearly $1 trillion cut to federal Medicaid spending in the GOP budget law. That’s combined with rising costs from treating more uninsured patients and other factors.
  • New caps on federal student loan borrowing could also push students away from clinical careers, many of which require pricey advanced degrees.
  • It wouldn’t be a surprise if a rise in deportations — combined with fewer foreign-born health workers opting to come to the U.S. on visas — dried up the pipeline of available help, especially in segments like home care.

Case in point: 

Alameda Health System, a safety-net provider based in Oakland, California, announced last month that it’s laying off 247 employees, including clinicians.

  • Administrators cited the system’s precarious finances: It expects to lose $100 million annually by 2030 as a result of the Medicaid cuts, per CBS San Fransisco.

AI automation is also pushing some providers to cut administrative staff.

  • Revere Health, the largest physician-owned health system in Utah, announced in September that it will lay off 177 employees, citing a partnership with a company that automates claims processing.
  • Clinical jobs in health care are more insulated from automation, and AI may actually help extend the clinical workforce where shortages exist.
  • Still, some clinicians are concerned. Almost 15,000 nurses in New York City went on strike this month, demanding new safeguards around AI use in hospitals, among other things.

What they’re saying: 

This past year represented “a repositioning of the labor market,” said Rick Gundling, chief mission impact officer at the Healthcare Financial Management Association.

  • Health systems are doing more targeted hiring, he said. They might look to downsize in revenue management but increase their clinical staff.

The intrigue: 

Demand for care is still high. The “silver tsunami” of aging Baby Boomers may keep jobs plentiful, said Laura Ullrich, director of economic research in North America at the Indeed Hiring Lab.

  • The U.S. is projected to be short some 100,000 health care workers by 2028, after all.
  • The question is whether the sector will remain near full employment, or whether circumstances will drive another surge.
  • “My opinion as an economist is that the tailwinds are stronger than the headwinds in health care,” she said.

The bond market keeps the score

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https://www.axios.com/newsletters/axios-macro-c0ce6d60-f79f-11f0-8ec7-a77fc28c0dad.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosmacro&stream=business

The bond market isn’t as responsive to Federal Reserve interest-rate policy as President Trump’s rhetoric might suggest. That makes the market a powerful check on the president.

  • We explore the tension — and what it means for this volatile week in geopolitics — below. 🏔
  • Plus, a dark horse to be the next Fed chair looks to be gaining ground. 🐎

Situational awareness: 

The Commerce Department released shutdown-delayed data that showed solid growth in incomes and spending for October and November.

  • Consumption expenditures were up 0.5% both months (0.3% inflation-adjusted), pointing to steady underlying demand.
  • The Fed’s preferred inflation measure rose 0.2% both months, and in November was up 2.8% over the previous year.
  • Q3 GDP was revised slightly higher, to a 4.4% annual growth rate (from 4.3% previously), reflecting an upward adjustment to exports.

Trump really, really wants lower interest rates, and the Federal Reserve and other tools of state power have tried to deliver them. The bond market isn’t cooperating.

Why it matters: 

Longer-term borrowing rates are set on global markets, as savvy players who together deploy trillions of dollars make bets on the future of growth and inflation.

  • In an era of vast power concentrated in the Oval Office, that makes it one of the few forces even Trump can’t control. It is a constraint on his actions that will not respond to insults or threats.
  • That, in turn, shows why the TACO trade — the bet that Trump Always Chickens Out when his rhetoric or actions start to ripple across global markets — has been in full force this week.

Driving the news: 

Trump sees the Fed as the main mechanism to bring rates down. That was evident in his latest plea for lower rates, which he brought to the global stage yesterday in Davos, Switzerland.

  • “I’ll be announcing a new Fed chairman in the not-too-distant future. I think he’ll do a very good job,” Trump told a room of global CEOs and government leaders at the World Economic Forum.
  • “Problem is, they change once they get the job. You know they’re saying everything I want to hear and then they get the job … and all of a sudden, it’s ‘let’s raise rates a little.'”
  • Trump said he hopes his pick “does the right thing” with lowering rates. He later added that the U.S. should be paying “the lowest interest rate of any country in the world” on its debt “because without the United States, you don’t have a country.”

Reality check: 

The Fed cut interest rates by a full percentage point in 2024 and another three-quarters of a percentage point in 2025. Yet longer-term borrowing costs are up in that time.

  • The day that rate-cutting began, Sept. 18, 2024, the 10-year U.S. Treasury yielded 3.7%. When the second wave of cutting began this past September, it was 4.06%.
  • This morning, the 10-year yield was 4.27%.
  • The rise in longer-term borrowing costs has happened for a mix of good reasons (higher growth prospects) and bad (higher inflation being priced in). But regardless, the swing shows the limit of the Fed’s ability to cater to the president’s wishes.

What they’re saying: 

“The Fed doesn’t really set interest rates,” JPMorgan Chase CEO Jamie Dimon said in Davos.

  • “What happens if inflation goes up? They raise interest rates. What happens if inflation goes down? They reduce interest rates. They are a follower.”

Yes, but: 

That doesn’t mean the president has no power over long-term interest rates. Tax and spending policy determines government deficits and, in turn, bond issuance and supply.

  • And this administration in particular has been creative in using the tools of government to try to encourage demand for longer-term securities, including directing Fannie Mae and Freddie Mac to buy hundreds of billions of dollars in mortgage bonds and tweaking regulations to encourage banks to hold more Treasuries.
  • Fed appointments also matter — though not necessarily in the way Trump emphasizes. A key to longer-term rates remaining low is investor confidence that the Fed will do what it takes to prevent inflation from taking off — even if that means rate increases in the near term.

Between the lines: 

Last April, a bond market sell-off was a big factor in Trump backing away from “Liberation Day” tariffs.

  • This week’s threats of military force against Greenland and new tariffs on Europe — followed by backtracking — seemingly had echoes of that episode.
  • Treasury Secretary Scott Bessent, however, said on a podcast that “the bond market didn’t change the calculus” and that “President Trump always knew where he was going.”

CMS’ 2024 Health Spending Report: Key Insights

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CMS’ 2024 Health Spending Report: Key Insights

As media attention focused on Minneapolis, Greenland and Venezuela last week, the Center for Medicaid and Medicare Services (CMS) released its 2024 Health Expenditures report Thursday: the headline was “Health care spending in the US reached $5.3 trillion and increased 7.2% in 2024, similar to growth of 7.4% in 2023, as increased demand for health care influenced this two-year trend. “

Less media attention was given two Labor Department reports released the Tuesday before:

  • Prices: The consumer-price index (CPI) for December came in somewhat higher than expected with an increase of 0.3% and 2.7% over the past 12 months. Overall inflation isn’t rising, but it also isn’t coming down.
  • Wages: The Labor Department reported average hourly earnings after inflation in the last year rose 0.7% during the first five months of this year, but real hourly earnings have declined 0.2% since May. They’re stuck.

Prices are increasing but wages for most hourly workers aren’t keeping pace. That’s why affordability is the top concern for voters.

Meanwhile, the health economy continues to grow—no surprise.  It’s a concern to voters only to the extent it’s impacting their ability to pay their household bills. They don’t care or comprehend a health economy that’s complex and global; they care about their out-of-pocket obligations and surprise bills that could wipe them out.

As Michael Chernow, MedPAC chair and respected Harvard Health Policy professor wrote:

“The headline number, 7.2% growth in 2024, is concerning but hardly a surprise. It follows 7.4% growth in 2023. This rate of NHE growth is not sustainable. It exceeds general inflation and growth in the gross domestic product (GDP), pushing the share if GDP devoted to health care spending to 18%  in 2024; the share of GDP devoted to health care is projected to rise to 20.3% by 2033. In fact, these figures may be an underestimate of the fiscal burden of the health care system because spending on some things, such as employer administrative costs, are not captured… Given all the attention to prices and insurer profits, it is important to note that those factors are not the main drivers of spending growth—this time, it’s not the prices, stupid. There was virtually no excess medical inflation (medical inflation above general inflation) for 2023 or 2024. In fact, prices for retail drugs (net of rebates) rose at a rate below inflation. There will certainly be cases of rising prices driving spending, but on average, price growth is not the problem. This does not mean high-priced products and services are not an important component of spending growth, but instead it implies that their contribution to spending growth on average stems from their greater use, not rising prices. The main driver of spending growth is greater volume and intensity of care…”

My take:

Since 2000 to 2024, total healthcare spending in the U.S. has been volatile:

  • 2000–2007: High growth, typically 6–8% per year (driven by rising utilization and prices).
  • 2008–2013: Growth slowed to 3–4% during and after the Great Recession.
  • 2014–2016: Growth ticked up to 4.5–5.8% with ACA coverage expansion.
  • 2017–2019: Moderation around 4.5%.
  • 2020: COVID‑19 shock—growth slowed to ~2% due to deferred care.
  • 2021: Rebound to ~4%.
  • 2022: 4.8%, close to pre‑pandemic norms.
  • 2023: 7.4%, fastest since 1991–92.
  • 2024: 7.2%, reaching $5.3 trillion (18% of GDP)

Between 2000 and 2024, total health spending in the U.S. increased $3.9 trillion (279%) while the U.S. population grew by 58 million (20.4%). 2025 spending is expected to follow suit. The underlying reason for the disconnect between health spending and population growth is more complicated than placing blame on any one sector or trend: it’s true in the U.S. and every other developed system in the world. Healthcare is expensive and it’s costing more.

This is good news if you’ve made smart bets as an investor in the health industry but it’s problematic for just about everyone else including many in the industry who’ve benefited from its aversion to spending controls and cost cutting.

The current environment for the healthcare economy is increasingly hostile to the status quo. Voters think the system is wasteful, needlessly complicated and profitable. Lawmakers think it’s no man’s land for substantive change, defaulting to price transparency, increased competition and state regulation in response. Private employers, who’ve bear the brunt of the system’s ineffectiveness, are timid and reformers are impractical about the role of private capital in the health economy’s financing.

The healthcare economy will be an issue in Campaign 2026 not because aggregate spending increased 7-8% in 2025 per CMS, but because it’s no longer justifiable to a majority of Americans for whom it’s simply not affordable. Regrettably, as noted in Corporate Board Member’s director surveys, only one in five healthcare Boards is doing scenario planning with this possibility in mind.

Paul

P.S. The President released his Great Healthcare Plan last Thursday featuring his familiar themes—price transparency for hospitals and insurers, most favored pricing and elimination of PBMs to reduce prescription drug costs—along with health savings accounts for consumers in lieu of insurance subsidies. The 2-page White House release provided no additional details.

The year the U.S. economy bent but didn’t break

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https://www.axios.com/2025/12/30/economy-trump-jobs-inflation

The U.S. economy was beaten and battered in 2025, and powered ahead despite it all.

The big picture: 

The question for 2026 is whether the underlying sources of weakness that are already evident will broaden out into something that threatens to undermine its overall resilience.

Threat level: 

Beneath buoyant growth in GDP and asset prices are serious worries.

  • The labor market is looking softer by the month.
  • Elevated inflation is pinching family budgets.
  • And fears are rising that the AI-fueled boom could leave ordinary workers worse off.

The big picture: 

Those pain points have already caused public opinion on the economy to turn sharply negative.

  • At the same time, one lesson of 2025 is that the U.S. economy is awfully adaptable and can withstand more challenges than you might expect.

Zoom in: 

In April, President Trump’s “Liberation Day” tariffs sent the stock market swooning and economists upgrading their recession odds.

  • It wasn’t the only sign of trouble. Job growth came to a near-halt over the summer. Deportations and restrictionist immigration are part of the story, along with the aging of the native-born workforce. But part of it is that companies are trying to get leaner.
  • Inflation, meanwhile, has become the fire that will not be fully doused. While the sky-high inflation of 2022 is a thing of the past, inflation has been above the Federal Reserve’s target 2% target every single month since March 2021.
  • Affordability is top of mind in public opinion.

Reality check: 

It’s important to remember, though, that the $30 trillion U.S. economy, for all its flaws, can weather a lot, at least at the macro level. It is, as RSM chief economist Joe Brusuelas puts it, a “dynamic and resilient beast.”

By the numbers: 

The headline data numbers have held up just fine, a trend punctuated by Tuesday’s report that GDP rose at a 4.3% annual rate in Q3, amid strong consumer spending and the AI-investment surge.

  • The S&P 500 is up more than 17% so far this year.
  • The unemployment rate edged up over the course of the year, to 4.6% in November. But that’s still lower than it has been in 69% of months dating back to 1948.

Yes, but: 

You can’t eat GDP, or points of the S&P. And the biggest issues for the U.S. economy — and the things that look like pre-eminent risks for 2026, are in what you might call the peripheral data.

  • While layoffs are still few, employers have slowed their hiring rates, which means those who do lose their jobs face hard sledding.
  • Job creation has been overwhelmingly driven by health care, with usual cyclical sectors like manufacturing and transportation and warehousing shedding jobs.
  • Consumer demand is displaying “K-shaped” trends, being highly concentrated among the affluent Americans enjoying surging stock wealth — while the household finances of lower earners are increasingly on a razor’s edge.

What they’re saying: 

The fact that strong third-quarter GDP growth coincided with weak job creation, Brusuelas writes in a note, “implies a decoupling between robust topline growth and soft jobs creation which in our estimation is likely to be the major economic narrative looking forward into 2026.”

What we’re watching: 

The 2026 economy is set to receive a boost from Washington, as the signature tax law passed in July — the One Big, Beautiful Bill Act — acts as a fiscal stimulus alongside the delayed impact of the Federal Reserve three interest-rate cuts since September.

  • It’s hard for companies to experience the kind of robust demand for goods and services they’ve seen in 2025 and not eventually have to hire more workers to help fulfill it.

The bottom line: 

There are plenty of risks on the horizon for 2026, but the economy’s striking resilience in 2025 is a reminder that doom-and-gloom predictions for the U.S. economy often prove wrong.

The 5 economic themes we’re watching in 2026

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https://www.axios.com/2026/01/05/economy-tariffs-ai

Tariff drama and tax cuts! AI spending and AI-spurred job losses! New Federal Reserve leadership! It is on track to be a big year across all the key policy areas of interest to economy-watchers.

The big picture: 

Seismic changes have been set in motion by the Trump administration’s sweeping policy agenda and a mega-wave of investment in artificial intelligence — likely to determine the fate of the economy in 2026.

1. The AI economy

The biggest macro questions are whether the alarm bells about AI and the labor market will start to ring true — and whether the productivity effects move from just anecdotes to the economic data.

  • Last year, much evidence pointed to AI as a marginal part of the labor market slowdown. Some economists (and officials inside the White House) argue that broader adoption of the technology would boost the labor market, at least in the short term.

Of note: 

AI spending buoyed economic growth, at least in the first nine months of 2025. It is also lifting the stock market, which might help support spending among wealthier consumers.

  • Whether this turns out to be a bubble that pops — and the extent such a risk poses to the broader financial system as the Fed rolls back regulations — is the related theme to watch.
  • That said, any correction in AI investment looks more likely to be a down-the-road story than a 2026 issue.

2. Tax cut boost

The One Big, Beautiful Bill Act, signed into law in July, is set to have its maximum economic punch in the early months of 2026, a likely tailwind for overall economic growth.

  • But how large, how broad-based and how sustained that boost will turn out to be remains to be seen.

Zoom in: 

Fiscal policy is on track to add about 2.3 percentage points to first-quarter GDP growth, per data from the Hutchins Center Fiscal Impact Measure from the Brookings Institution.

  • On the individual tax side, beneficiaries of policies like a deduction for tip income, Social Security payments and expanded deductibility of state and local tax are on track to generate super-sized tax refunds this spring,
  • On the corporate side, businesses are enjoying new tax incentives for capital spending, especially on factories.
  • Federal spending on immigration enforcement, meanwhile, is ramping up due to the legislation.

3. Trade uncertainty (maybe) resolving

Any day now, the Supreme Court will hand down a decision that might scramble the centerpiece of President Trump’s economic agenda: the ability to impose huge tariffs unilaterally.

  • If the court strikes down the bulk of Trump’s tariffs, fiscal revenues could be put at risk, resulting in a chaotic refund process.
  • That said, the ruling will help create some guardrails on what kinds of legal authority the president has to impose unilateral tariffs. That, in turn, could lead to a more stable tariff picture (albeit with much higher rates than pre-2025).
  • While there are other authorities the president can use to enact tariffs besides the sweeping authority under the International Emergency Economic Powers Act he has claimed, they require a more deliberative process than the kind of whipsawing that importers faced last year.

4. Future of the Fed

Fed chair Jerome Powell’s term is up in May, and Trump’s selection of his successor is imminent, with Kevin Hassett and Kevin Warsh the leading job candidates.

Zoom out: 

Whoever takes the reins will face immense pressure from Trump to lower interest rates to rock-bottom levels — amid continued high inflation — and how they handle that pressure may determine the future of the central bank’s independence from the White House.

  • Trump expects the future Fed chair to consult with him on rates, while casting the intention to lower rates as a key qualification for the next leader.
  • The question is whether the next Fed chair can resist that political pressure and whether financial markets believe that is the case. If bond markets lose confidence that the Fed will raise short-term rates if necessary to combat an inflation surge, it could paradoxically drive up long-term rates.
  • Another huge question: the makeup of the influential Fed board, with the Supreme Court also set to decide whether Trump can fire governor Lisa Cook and, by extension, other Biden-appointed governors.

5. Affordability and the midterms

With voters going to the polls in November, the cost of living is emerging as a core battleground.

  • Democrats seeking to take control of Congress are making political hay about the affordability crisis.
  • Trump has called the term affordability a “con job,” but said recently that he believes “pricing” will be a major election issue.

Flashback: 

The Consumer Price Index is up a moderate 2.7% over the last 12 months, but that increase came on top of the Biden-era inflation surge.

  • The index is up 23.7% since January 2021, even more for some often-purchased subcategories, including groceries (up 24.6%).

Over the holiday break, the administration quietly shelved plans to impose levies on imported pasta and furniture.

  • It’s a hint that the White House is eager to avoid trade levies that might flow directly to prices consumers pay, as opposed to affecting input costs for businesses.