We closed 2023 and entered 2024 with a market rally, newly born confidence that the inflation battle won’t lead us into a recession, and relief from what seemed for much of 2023 like perennial personal anxiety for many Americans.
While we enjoy some good news, several systemic economic issues remain unaddressed. Ultimately, how they are addressed will determine the course of our economy in the months immediately ahead.
We’d like to address the recent events and the economic issues needing resolution to give some perspective on the transitions we see ahead.
No Reason To Expect A Major Recession
Just in case the first couple of paragraphs above are making anyone feel uneasy and anxious again (we’ve had enough of that in 2023), we want to be absolutely clear we are not suggesting a recession is imminent, nor do we feel it would be particularly severe if a recession does develop later in the year.
In one sense, we can say that recessions are inevitable, but so are recoveries. If we live long enough, we will all experience both several times over. The more relevant question is always whether the economy is deteriorating significantly enough to trigger a major recession and market pullback imminently. We do not see that in the cards at this time.
Recap Of Where We Are
Throughout the last couple of years, we’ve seen several significant developments.
Inflation expanded, then diminished, but may be rising again. We closed 2021 with the Federal Reserve insisting that “inflation was transitory,” but we quickly plunged into an annual inflation rate of 9% as of June 2022. The Fed then acknowledged that inflation was higher and more severe than they thought, and they began addressing it. Inflation dropped to 6.5% measured in December 2022 and then seemed to have settled around 2.5% in November 2023, only to tick back up to 3.9% as of December 2023.
As explained in earlier commentaries, we were always suspicious of the claims during 2023 that inflation had been tamed. We’ve been in business long enough to remember those same claims in the late 1970s, only then to see inflation roar back to life. To paraphrase a great movie line, “Vampires have to be totally killed, not just a little killed.”
Today’s reality is that inflation is not where the Fed wants it to be or should be. The Fed’s target is 2%. The Fed’s actions over the last couple of years to raise interest rates and withdraw money from the economy have helped, but more work still needs to be done.
The December jump in inflation to 3.9% is evidence of that. We don’t believe interest rates necessarily have to increase from their current levels, but they certainly should not be lowered too soon.
Economic growth is slower than desired and well below what is possible. Across a variety of metrics, the growth in our economy remains sluggish. Slow growth is certainly better than economic contraction, but higher growth rates are possible and would greatly help the country.
The most recent jobs report showed an increase in payrolls – better than the consensus expectations – but the average hours worked by employees actually decreased in December. More people were working, but collectively, they worked less than the month before.
Further, on that point, the quality of the added jobs was low. Many of these jobs came in economic sectors heavily supported in recent quarters by government spending and interventions. Since those are not likely to continue, their impact on the overall economy will diminish. The more permanent type of employment found in other sectors of the economy did not increase as desired.
Manufacturing activity was similarly inflated by government spending in favored areas. Those do not create real growth because they must be “paid for” by decreases in other areas of the economy. Government spending in favored areas boosted jobs (today), but they will be offset by losses (tomorrow) in the sectors not favored by government spending. The net effect is not sustainable economic growth.
Near-term prospects for continued consumer spending are not as strong as they have been. Government payouts, credits, & tax moratoriums to rebuild after COVID-19 have pushed consumer spending up, but they have almost completely worked their way through the system. Consumer spending should gradually decrease during 2024, representing a headwind to future growth.
Government spending decisions need long-term resolution. The combination of political and economic uncertainty we face today hurts the economy and discourages companies from making key economic decisions. While it seems Congress has reached a new budget deal, which buys us time roughly through March, the issue will arise again. Throughout these Congressional spending debates, the now common dire warnings about “government shutdowns” and “defaults” are both wrong and corrosive.
There has never been, nor is there likely to be, a permanent shutdown or a default. In previous Congressional showdowns when a budget deadline was missed, the government reduced spending in some areas, and some government workers were furloughed. When Congress eventually struck a deal, workers returned, back wages were paid, and any delayed interest payments were paid. No real “shutdown” and no “default.”
The threat, however, discourages investors from taking risks and managers from making large capital investments. Both are critical to a highly functioning growth economy.
Congressional leaders on both sides of the aisle can agree that the current level of deficits are unsustainable. Each side, of course, differs in how they want to deal with those continuing deficits. The economic reality is that they cannot continue much longer.
Deficits must be paid for. In the short term, the government can simply borrow the money to cover the deficit, but the borrowed funds must be repaid. That repayment can only come from some combination of higher future taxes, higher future budget surplus, or higher future inflation, which reduces the real value of the debt being repaid.
The relationship between government spending and revenue as a percentage of GDP is at the heart of the issue, as demonstrated by the chart below compiled by Scott Grannis.
Economic Commentary – 2024 Economic Outlook
We closed 2023 and entered 2024 with a market rally, newly born confidence that the inflation battle won’t lead us into a recession, and relief from what seemed for much of 2023 like perennial personal anxiety for many Americans.
While we enjoy some good news, several systemic economic issues remain unaddressed. Ultimately, how they are addressed will determine the course of our economy in the months immediately ahead.
We’d like to address the recent events and the economic issues needing resolution to give some perspective on the transitions we see ahead.
No Reason To Expect A Major Recession
Just in case the first couple of paragraphs above are making anyone feel uneasy and anxious again (we’ve had enough of that in 2023), we want to be absolutely clear we are not suggesting a recession is imminent, nor do we feel it would be particularly severe if a recession does develop later in the year.
In one sense, we can say that recessions are inevitable, but so are recoveries. If we live long enough, we will all experience both several times over. The more relevant question is always whether the economy is deteriorating significantly enough to trigger a major recession and market pullback imminently. We do not see that in the cards at this time.
Recap Of Where We Are
Throughout the last couple of years, we’ve seen several significant developments.
Inflation expanded, then diminished, but may be rising again. We closed 2021 with the Federal Reserve insisting that “inflation was transitory,” but we quickly plunged into an annual inflation rate of 9% as of June 2022. The Fed then acknowledged that inflation was higher and more severe than they thought, and they began addressing it. Inflation dropped to 6.5% measured in December 2022 and then seemed to have settled around 2.5% in November 2023, only to tick back up to 3.9% as of December 2023.
As explained in earlier commentaries, we were always suspicious of the claims during 2023 that inflation had been tamed. We’ve been in business long enough to remember those same claims in the late 1970s, only then to see inflation roar back to life. To paraphrase a great movie line, “Vampires have to be totally killed, not just a little killed.”
Today’s reality is that inflation is not where the Fed wants it to be or should be. The Fed’s target is 2%. The Fed’s actions over the last couple of years to raise interest rates and withdraw money from the economy have helped, but more work still needs to be done.
The December jump in inflation to 3.9% is evidence of that. We don’t believe interest rates necessarily have to increase from their current levels, but they certainly should not be lowered too soon.
Economic growth is slower than desired and well below what is possible. Across a variety of metrics, the growth in our economy remains sluggish. Slow growth is certainly better than economic contraction, but higher growth rates are possible and would greatly help the country.
The most recent jobs report showed an increase in payrolls – better than the consensus expectations – but the average hours worked by employees actually decreased in December. More people were working, but collectively, they worked less than the month before.
Further, on that point, the quality of the added jobs was low. Many of these jobs came in economic sectors heavily supported in recent quarters by government spending and interventions. Since those are not likely to continue, their impact on the overall economy will diminish. The more permanent type of employment found in other sectors of the economy did not increase as desired.
Manufacturing activity was similarly inflated by government spending in favored areas. Those do not create real growth because they must be “paid for” by decreases in other areas of the economy. Government spending in favored areas boosted jobs (today), but they will be offset by losses (tomorrow) in the sectors not favored by government spending. The net effect is not sustainable economic growth.
Near-term prospects for continued consumer spending are not as strong as they have been. Government payouts, credits, & tax moratoriums to rebuild after COVID-19 have pushed consumer spending up, but they have almost completely worked their way through the system. Consumer spending should gradually decrease during 2024, representing a headwind to future growth.
Government spending decisions need long-term resolution. The combination of political and economic uncertainty we face today hurts the economy and discourages companies from making key economic decisions. While it seems Congress has reached a new budget deal, which buys us time roughly through March, the issue will arise again. Throughout these Congressional spending debates, the now common dire warnings about “government shutdowns” and “defaults” are both wrong and corrosive.
There has never been, nor is there likely to be, a permanent shutdown or a default. In previous Congressional showdowns when a budget deadline was missed, the government reduced spending in some areas, and some government workers were furloughed. When Congress eventually struck a deal, workers returned, back wages were paid, and any delayed interest payments were paid. No real “shutdown” and no “default.”
The threat, however, discourages investors from taking risks and managers from making large capital investments. Both are critical to a highly functioning growth economy.
Congressional leaders on both sides of the aisle can agree that the current level of deficits are unsustainable. Each side, of course, differs in how they want to deal with those continuing deficits. The economic reality is that they cannot continue much longer.
Deficits must be paid for. In the short term, the government can simply borrow the money to cover the deficit, but the borrowed funds must be repaid. That repayment can only come from some combination of higher future taxes, higher future budget surplus, or higher future inflation, which reduces the real value of the debt being repaid.
The relationship between government spending and revenue as a percentage of GDP is at the heart of the issue, as demonstrated by the chart below compiled by Scott Grannis.
For the last 53 years, we have established an average spending level (red dotted line), which is consistently higher than the average revenue level (blue dotted line). As a result, we have run deficits in most years. The solid red and solid blue lines show the actual deficit percentage each year, with a handful of surpluses also shown. The recent spending levels – 2021 forward – have dramatically increased the deficit and federal debt to cover those deficits.
This is what is unsustainable. Everyone knows that something has to change; as a country, we will have to move toward generally lower spending levels or generally higher revenue levels. We cannot simply stay as we are. The uncertainty of how our elected leaders will resolve this discourages investors from taking risks and managers from making large capital investments. Both are critical to a highly functioning growth economy.
The Future For The Economy
Short-term, it is reasonable to expect that we will see a continuation of slow growth, but it won’t be as good as it can be. We may see a brief resurgence of inflation, but we do not believe it will get out of control. Finally, there may be a mild recession. Absent a major international blow-up, the Fed’s actions will determine whether we truly achieve a soft landing (inflation tamed without a recession). If that landing is a bit bumpier, we believe any recession would be mild and short.
In the long term, the mismatch between government spending and revenue will be addressed (it has to be), which will largely set the stage for sustainable economic growth. We see the range for long-term economic growth being somewhere between 1.75% and 2.5%, depending on how the mismatch is resolved. That may not seem like much, but it is a significant difference in relative terms of the long haul. It means the economy would be 16% larger in 20 years, 25% larger in 30 years, and a whopping 34% larger in 40 years. Economic growth rates matter.
Long-term, we believe the prospects for economic growth are very strong; we just do not know the growth rate. The rate of that growth will determine the size of our economy and our general living standard.
The Future For The Markets
We believe the market is in a “fair market” range, meaning that stocks as a whole are not undervalued or overvalued. There is no evidence of unwarranted fear or irrational exuberance affecting stock prices. Investors are not discounting prices out of fear, and they are not bidding prices up irrationally.
Stock pricing is ultimately determined by profits and inflation. There are ebbs and flows along the way, and emotional sentiment influences pricing in the short term, but over the years, the market trend will match the economy’s. We’re very confident the market will be higher in 15 to 20 years, but we cannot even attempt to project where it will be in 6 months.
Portfolio Implications
The implications for investment portfolios are exactly the same as we wrote in our last economic commentary. And this is the first time we can remember where we are literally repeating word-for-word that summary.
Executive Summary
We have entered 2024 with strong returns in the last several weeks of 2023 and the first few of this year. We do not believe a major recession is in the wings, but there may be a minor interruption to the current economic expansion. In the long term, the future of the economy and the stock markets will depend on how we as a country decide to deal with mismatches between government spending and revenue.
A Health Savings Account (HSA) is a tax-advantaged savings account designed to help individuals with high-deductible health plans (HDHPs) pay for qualified medical expenses. What sets HSAs apart is their triple tax advantage: contributions reduce taxable income, earnings grow tax-free, and withdrawals for eligible medical expenses aren’t taxed.
For anyone looking to reduce healthcare costs, save on taxes, and even prepare for retirement, an HSA is a powerful financial tool. Here’s why it matters:
Quick Overview
Eligibility and Contributions
To qualify for an HSA, you must enroll in a High Deductible Health Plan (HDHP). For 2025, that means a minimum deductible of $1,650 for self-only coverage or $3,300 for family coverage. Being enrolled in other coverage, like Medicare, will disqualify you.
Contributions can come from you, your employer, or even family members, and must be cash (not investments or property).
For Health Savings Account, in 2025, individuals can contribute up to $4,300 and families up to $8,550, with an additional $1,000 catch-up contribution allowed for those 55 and older.
(Age 55+)
Health Savings Account Benefits
HSAs offer unmatched tax perks:
Compared to other accounts like 401(k)s and IRAs, HSAs have no required minimum distributions (RMDs), making them ideal for long-term wealth building. The account is also fully portable – you own it outright even if you change jobs or insurance plans.
Managing Your Account
Maximizing an HSA starts with selecting the right provider – look for low fees, robust investment options, and user-friendly interfaces. Many HSA administrators offer the ability to invest your balance in mutual funds, ETFs, or other vehicles.
Keep thorough records of your contributions, distributions, and receipts. This documentation ensures IRS compliance and preserves your tax advantages. Consider using your HSA debit card for convenience, but always retain proof of qualified expenses.
Using Your HSA
HSA funds can be used for a broad range of medical expenses, including:
Keeping receipts is crucial, especially if you choose to pay out-of-pocket and reimburse yourself later – a strategy that allows your HSA investments to grow tax-free for longer.
Investment Options
HSAs aren’t just for short-term spending – they can serve as investment accounts for long-term financial planning. Investment strategies vary based on your goals:
needs
annual deductible
70% bonds
future needs
40% bonds
planning
Experts recommend keeping at least enough cash to cover your deductible and investing the rest according to your risk tolerance.
Retirement Planning
When used correctly, HSAs can be a strategic retirement planning vehicle. After age 65, funds can be used for non-medical expenses without penalty (though they are taxed as ordinary income). That flexibility makes HSAs a powerful complement to 401(k)s and IRAs.
Consider these retirement-focused strategies:
Tax Implications
The tax benefits of HSAs are a cornerstone of their appeal:
However, distributions for non-qualified expenses before age 65 are subject to income tax plus a 20% penalty. After 65, only ordinary income tax applies.
Work with a tax advisor to stay within IRS guidelines and maximize your savings for the best results.
Comparing a Health Savings Account to Other Accounts
HSAs outperform many similar financial vehicles in flexibility and tax efficiency. Here’s how Health Savings Accounts compare to other financial accounts:
Disclaimer: The information presented in this table is for general informational purposes only and is used as a broad comparison tool. Contribution limits, tax rules, and eligibility requirements are subject to change depending on the intricacies of each account type.
Unlike Flexible Spending Accounts (FSAs), HSA funds roll over yearly and belong to you regardless of employment. And unlike 401(k)s or IRAs, you can use HSA funds anytime for qualified medical expenses with no penalties.
Family and Estate Planning
HSAs can be used for qualified medical expenses for your spouse and dependents – even if your HDHP doesn’t cover them. Upon your death, the HSA transfers to a named beneficiary. If that’s your spouse, it remains an HSA; for others, it’s treated as taxable income.
To maximize long-term value:
Portability and Flexibility
An HSA travels with you. Change jobs, move states, switch health plans – your HSA stays intact. You can even open multiple HSAs for different strategies (e.g., short-term spending vs. long-term investing).
This flexibility allows you to build a healthcare safety net that evolves with your needs.
Health Care Integration
HSAs are designed to complement HDHPs by reducing your net out-of-pocket costs. They provide a safety buffer against large medical expenses and a way to pay for ongoing healthcare needs like:
When used strategically, HSAs help make high-deductible plans more manageable and affordable.
Is an HSA Right for You?
A Health Savings Account is more than just a savings tool – it’s a cornerstone of a smart financial and retirement strategy. With triple tax advantages, investment potential, and unmatched flexibility, HSAs can significantly reduce healthcare costs and support long-term financial goals.
To get the most out of your HSA:
Whether you’re saving for next year’s doctor visits or planning decades in advance for retirement, an HSA belongs in your financial toolkit.
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Meet Greg Welborn
Greg Welborn is a Principal at First Financial Consulting. He has more than 35 years’ experience in providing 100% objective advice, always focusing on the client’s best interests.
Meet Greg Welborn
Greg Welborn is a Principal at First Financial Consulting. He has more than 35 years’ experience in providing 100% objective advice, always focusing on the client’s best interests.
FAQ | Health Savings Account
A Health Savings Account (HSA) is a tax-advantaged savings account available to individuals who are enrolled in a High-Deductible Health Plan (HDHP). It allows you to set aside money on a pre-tax basis to pay for qualified medical expenses. Funds in an HSA can be used to cover deductibles, copayments, prescriptions, dental and vision care, and more - all while reducing your taxable income. The account is owned by you, not your employer, and the money rolls over year to year.
To qualify for an HSA, you must meet the following criteria:
For 2025, an HDHP must have a minimum deductible of $1,650 for self-only coverage or $3,300 for family coverage, along with a maximum out-of-pocket limit of $8,300 (individual) or $16,600 (family).
The IRS sets annual contribution limits for HSAs, which adjust for inflation. For 2025, individuals can contribute up to $4,300 and families up to $8,550. If you're 55 or older, you can contribute an additional $1,000 as a "catch-up" contribution. These contributions can come from you, your employer, or both combined, but they cannot exceed the annual limit.
HSA funds can be used to pay for a wide range of qualified medical expenses, including doctor visits, prescriptions, vision and dental care, and even some over-the-counter medications. If you use the funds for non-qualified expenses before age 65, you'll pay regular income tax plus a 20% penalty. After age 65, you can use the money for any purpose without a penalty - though non-medical expenses will still be taxed as income.
Yes, many HSA providers allow you to invest your HSA funds once your balance reaches a certain threshold, often around $1,000 or $2,000. You can invest in mutual funds, ETFs, and other securities. This gives your HSA the potential to grow significantly over time, especially if you don’t need to tap into it for short-term medical costs.
Your HSA is yours to keep, no matter where you work or what health insurance you have in the future. It's a portable account, meaning you can continue using the funds for qualified medical expenses even if you're no longer enrolled in an HDHP. However, you can only contribute to the HSA while you're actively covered by a qualifying HDHP.
Yes, you can use your health savings account for non-medical expenses. However, there are conditions you must meet.
If you're under age 65, using HSA funds for non-qualified expenses will result in income tax plus a 20% penalty.
If you're 65 or older, you can withdraw funds for any purpose without penalty - though non-medical expenses are still taxed as regular income (similar to a traditional IRA).
This makes the HSA a potential secondary retirement account for those who stay healthy and don’t use all their medical savings.
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