The currency chart does show that the money supply started to contract in 2023 and is very close to returning to the 6% long-term trend line. That is good news, but it doesn’t mean we’re out of the woods yet.
Inflation is a lagging phenomenon. We feel it after the money supply has increased. Even though we can see that the money supply has decreased, the job is not been finished. In fact, as surprising as it may be, the inflation rate has spiked a bit in the last several months.
The Fed’s goal is to maintain a 2% annual inflation rate, and progress toward this goal seems to have stalled. There are multiple measures of inflation, but we have seen increases across the board.
The Fed’s favorite measure is PCE prices; this measure increased to 2.6% in 2024. Another measure called Core prices increased 2.7% in 2024, and Supercore prices rose 3.5% in 2024, which was actually higher than the 2023 rate.
The Fed has made progress in dampening inflation – certainly in bringing it down from 7% in 2021 – but needs to finish the job. This is where it gets tricky and, therefore, uncertain and lacks clarity. In a series of recent moves, the Fed brought interest rates down 1.00% but has now paused those moves because of the inflation data.
As much as inflation lags after changes in the money supply, economic activity lags even more after that. Economists have estimated the delay to be anywhere from 6 months to 18 months, depending on the specific circumstances. As we write this commentary in February 2025, we may not have seen all the economic ramifications of the Fed’s inflation fight.
We may see some additional slowdown. High interest rates have a negative effect on business investment and consumer spending. It is possible we’ll still see an economic contraction, but we do not envision a significant recession – if one at all.
The danger is an overreaction from the Fed. If economic data begins to slow down again, the Fed will have to judge whether to leave interest rates as they are or to decrease them to goose the economy. How that plays out in conjunction with the administration’s use of tariffs and the administration’s promises to reduce taxes and regulation (which would increase economic profits) will determine the true course of the economy in the months ahead.
Investment Implications
The lesson to draw from all this is that we cannot predict and prepare for the next economic event. Hopefully, the information above demonstrates that nobody knows exactly what the future holds. But even if we could predict the next economic event, the challenge is to predict the one after that, and then the one after that, etc.
Market timing can sometimes seem like a no-brainer, but that is almost always because you’re focused on the immediate future. The consistent problem with market timing is knowing when the current dynamics are going to change. Let’s consider an example from recent history.
The S&P 500 hit a high very close to December 31, 2019. Everything looked rosy. Then came Covid and the lockdowns. Let’s pretend you knew that was coming and you got out of the stock market. You would have avoided the 19% loss in the first quarter of 2020. But what else would you have avoided?
Remember how dour the circumstances and the news were in March, April & May of 2020. Covid was raging, and the economy was locked down. But the markets saw the recovery before anyone else did. The 2nd quarter of 2020 (April, May & June) generated a 20.58% positive return for the S&P.
Subsequent quarters saw returns of 8.8%, 12.1%, and a slew of others until 2022 when inflation was no longer “transitory,” and the market dropped. The pattern of unseen negative economic events and unseen positive recoveries was repeated.
But what about the real losses bailing on the market could have caused? Very few people think about the opportunity costs, and yet they are very real.
Again, assuming someone was clairvoyant enough to see the Covid recession coming, we have compared the cumulative effects of several positions that could have been taken from 2020 through 2024. Remember that the cumulative inflation over this period was 22.9%. If you bailed completely, you would have lost 22.9%. That’s not hypothetical; it’s a real loss.
Positions You Could Have Taken:
Economic Commentary – Looking For Clarity
The U.S. is not on a precipice, nor is it staring down an imminent recession, nor is it facing a looming economic crisis. In short, our economy is not on the verge of anything. As strange as it may sound, that’s the problem; nobody seems to feel as though they know which direction we’re going.
The economic data seems to be quite strong, while at the same time, we have a new administration using new methods to change the economic order they inherited. Of course, throughout our history, new administrations have sought to change the economic situation they inherited. This is as newsworthy as a “Dog-Bites-Man” story.
The difference is that this administration isn’t following the standard, if unwritten, Washington rules for how things are supposed to be done. From tariff threats to Cabinet appointments to executive orders to social media pronouncements, this administration is doing things differently.
We’ve said before that the economy’s health is determined by the wealth (economic activity) being generated. The health of the markets tends to track closely the health of the economy as determined by the market’s ability to predict, measure, and then value the profits created by all this economic activity.
There is a legitimate sense of chaos, even if there is no sense of whether the chaos will lead to good or bad outcomes. It’s no surprise, therefore, that institutional investors and the market in general are reacting at each moment to things they haven’t had to deal with for quite some time. We should expect a pattern of market volatility for a while as the overall direction is determined.
The Economic Data
The economic data seems remarkably positive, as the following quick summary stats show:
These are not the signs of a recession, crisis, or precipice. These and other data points indicate that we continue recovering and growing from the Covid shutdown-induced recession. Optimism is justified.
The Wildcard – Tariffs
Depending on how you read President Trump’s tariff campaign promises and the ones recently imposed on Mexico, Canada, and China, there are reasons to be pessimistic. If he means them to be broad-based, long-term, and specific policy goals in and of themselves, the economy will suffer. Tariffs increase the costs of the goods targeted, increasing their prices and correspondingly decreasing the prices for other items. They reduce economic efficiency and growth.
However, tariffs do not affect all countries in the same way. Countries whose economies heavily depend on access to American markets will suffer more than countries that are less dependent.
Accordingly, tariffs can be an extremely effective bargaining tool with countries where that dependence on the American market is substantial. Without attempting to debate the policy merits of what the administration wants from Mexico, Canada, and China, using a tariff or a real threat of one is not necessarily an illogical act.
It is, however, a powerful and therefore dangerous tool to use. If tariffs induce reciprocal tariffs against U.S. exports, and if the level of all tariffs rise to significant levels, then the global and U.S. economies would all be hit.
So, the question remains whether tariffs are simply a negotiating tool or a policy prescription in their own right.
The Wildcard – Inflation
Despite some claims to the contrary in national media, tariffs do not cause inflation. Inflation is and has always been a monetary phenomenon. We’ll delve into that in a moment, but the effect of tariffs is to increase some prices while they reduce other prices. Inflation is a rise in the general level of all prices. Tariffs don’t do that.
Tariffs increase the prices of the goods being tariffed, but that leaves companies and consumers who buy tariffed goods less money to spend on other items, and the prices of those other items decrease.
Inflation – a rise in the general level of all prices – is caused when too much money is printed and put into circulation. Part of the government’s solution to the Covid-induced lockdowns was putting more money into circulation.
As the chart below (courtesy of Scott Grannis) shows, the amount of currency in circulation was on a roughly 6% annual growth rate up until the Covid era. The “bump” in the blue line shows how dramatically currency was expanded from 2020 through 2023, when it finally started to fall.
Cumulative inflation for the period 2020 through 2024 was 22.9%. The annual rates within this period ranged from 1.4% to 7%, but the cumulative impact has been significant.
The currency chart does show that the money supply started to contract in 2023 and is very close to returning to the 6% long-term trend line. That is good news, but it doesn’t mean we’re out of the woods yet.
Inflation is a lagging phenomenon. We feel it after the money supply has increased. Even though we can see that the money supply has decreased, the job is not been finished. In fact, as surprising as it may be, the inflation rate has spiked a bit in the last several months.
The Fed’s goal is to maintain a 2% annual inflation rate, and progress toward this goal seems to have stalled. There are multiple measures of inflation, but we have seen increases across the board.
The Fed’s favorite measure is PCE prices; this measure increased to 2.6% in 2024. Another measure called Core prices increased 2.7% in 2024, and Supercore prices rose 3.5% in 2024, which was actually higher than the 2023 rate.
The Fed has made progress in dampening inflation – certainly in bringing it down from 7% in 2021 – but needs to finish the job. This is where it gets tricky and, therefore, uncertain and lacks clarity. In a series of recent moves, the Fed brought interest rates down 1.00% but has now paused those moves because of the inflation data.
As much as inflation lags after changes in the money supply, economic activity lags even more after that. Economists have estimated the delay to be anywhere from 6 months to 18 months, depending on the specific circumstances. As we write this commentary in February 2025, we may not have seen all the economic ramifications of the Fed’s inflation fight.
We may see some additional slowdown. High interest rates have a negative effect on business investment and consumer spending. It is possible we’ll still see an economic contraction, but we do not envision a significant recession – if one at all.
The danger is an overreaction from the Fed. If economic data begins to slow down again, the Fed will have to judge whether to leave interest rates as they are or to decrease them to goose the economy. How that plays out in conjunction with the administration’s use of tariffs and the administration’s promises to reduce taxes and regulation (which would increase economic profits) will determine the true course of the economy in the months ahead.
Investment Implications
The lesson to draw from all this is that we cannot predict and prepare for the next economic event. Hopefully, the information above demonstrates that nobody knows exactly what the future holds. But even if we could predict the next economic event, the challenge is to predict the one after that, and then the one after that, etc.
Market timing can sometimes seem like a no-brainer, but that is almost always because you’re focused on the immediate future. The consistent problem with market timing is knowing when the current dynamics are going to change. Let’s consider an example from recent history.
The S&P 500 hit a high very close to December 31, 2019. Everything looked rosy. Then came Covid and the lockdowns. Let’s pretend you knew that was coming and you got out of the stock market. You would have avoided the 19% loss in the first quarter of 2020. But what else would you have avoided?
Remember how dour the circumstances and the news were in March, April & May of 2020. Covid was raging, and the economy was locked down. But the markets saw the recovery before anyone else did. The 2nd quarter of 2020 (April, May & June) generated a 20.58% positive return for the S&P.
Subsequent quarters saw returns of 8.8%, 12.1%, and a slew of others until 2022 when inflation was no longer “transitory,” and the market dropped. The pattern of unseen negative economic events and unseen positive recoveries was repeated.
But what about the real losses bailing on the market could have caused? Very few people think about the opportunity costs, and yet they are very real.
Again, assuming someone was clairvoyant enough to see the Covid recession coming, we have compared the cumulative effects of several positions that could have been taken from 2020 through 2024. Remember that the cumulative inflation over this period was 22.9%. If you bailed completely, you would have lost 22.9%. That’s not hypothetical; it’s a real loss.
Positions You Could Have Taken:
Those results are probably surprising. Weathering the recession and the stock market’s quarterly volatility would have generated a 73.9% real cumulative return after inflation. This is not an argument to hold a portfolio of 100% stocks. That might be right for some accounts for some people, but it’s not a prescription for everyone. The key point is that opportunity costs are very real, and trying to avoid one situation may actually cause more harm than what you were trying to avoid in the first place.
Portfolios must be designed with a target return in mind, with a keen understanding of your risk tolerance, and an accurate assessment of your liquidity needs so you can withstand market volatility and still meet your goals – both near-term and long-term.
With time, clarity will come. If you still have any concerns about the future, the best way to address them is to review your portfolio design with all of the above elements in mind. There are potential losses at both ends of the spectrum. Stocks are volatile, but their losses are usually temporary. Inflation is usually more gradual, but its effects are permanent. The best portfolio construction is designed to protect you from both losses while growing over the long term.
Executive Summary
We live in volatile times; all eyes are on Washington to determine what the new policies will be, but many of the old unwritten rules of how things are done in Washington are being jettisoned. The economic data remains strong, but threats remain, and the market is looking for clarity. Ultimately, wise portfolio construction still offers the best protection from all these risks while allowing you to still achieve your investment goals.
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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