Happy Thursday! Social Security was signed into law by President Franklin Delano Roosevelt 90 years ago today, but the program and the agency administering it now face major challenges. We've got a look at that and the latest economic signals about the effect of President Donald Trump's tariffs.
Key Inflation Measure Jumps, Suggesting Trump's Tariffs May Soon Hit Consumers
Wholesale prices surged in July, raising concern that consumers will soon be faced with rising inflation as companies pass along higher costs stemming from President Donald Trump's tariffs.
The Bureau of Labor Statistics said Thursday that its producer price index rose 0.9% last month compared to June, the biggest jump in more than three years. Wholesale prices rose 3.3% compared with a year earlier. Core producer prices, which exclude volatile food and energy prices, rose 0.9% from June, the biggest monthly increase since March 2022. Core prices were up 3.7% compared with a year ago.
The price increases were higher than economists expected. The consumer price index released two days ago showed that those prices rose 2.7% last month compared to July 2024, but the "core" measure excluding food and energy was up 3.1%.
"Well... this is a kick in the teeth for anyone who thought that tariffs would not impact domestic prices in the United States economy," Carl Weinberg, chief economist at High Frequency Economics, wrote in a note to clients, adding, "It will not be a long journey for producers' prices to translate into consumer prices."
Services costs increased 1.1%, but Weinberg pointed to the 0.4% monthly rise in core good prices - the largest since January 2023 - as another point of concern: "There is the beef for Fed policymakers and for everyone who is worried that the cost of tariffs is indeed going to come home to U.S. consumers."
Why it matters: The producer price data suggests that American importers have been absorbing much of the cost of Trump's tariffs, but that more of those costs may soon get passed on to consumers, especially as inventories built up before the tariffs took effect get depleted.
The latest numbers may complicate the Federal Reserve's outlook for interest rates. Following the consumer inflation report and a surprisingly weak jobs report for July, investors have grown increasingly confident that the Fed will lower its benchmark rate next month, with the CME FedWatch tool tracking market expectations showing a 100% chance of at least a quarter-point cut, up from 58.9% a month ago. The probability of a September cut slipped to 92.6% after Thursday's report on producer prices.
Weinberg wrote that the jump in producer prices "is more than big enough to get the Fed's attention... more than big enough to justify the Fed's decision to sit tight and wait for more data before considering any reductions in interest rates to support an obviously falling economy."
J. P. Morgan economist Michael S. Hanson noted that next month's jobs report will likely be a more important factor in the Fed's decision on interest rates. Still, one big question for the Fed, economists and American families alike will be what portion of these price increases are absorbed by wholesalers and retailers and what portion gets passed on to consumers. Then the question will be whether Trump's import taxes result in a one-time adjustment to prices or a more lasting increase in inflation.
As It Turns 90, Social Security 'Looks More Threatened Than Ever'
President Trump issued a proclamation Thursday celebrating the 90th anniversary of the Social Security Act of 1935. In an event in the Oval Office, he called the law one of the most significant pieces of legislation ever and claimed he is abiding by a campaign pledge to protect and strengthen the program for generations to come.
Trump then launched a partisan attack. "You keep hearing stories that in six years, seven years, Social Security will be gone, and it will be if the Democrats ever get involved because they don't know what they're doing, but it's going to be around a long time with us," he said.
A reality check: Social Security today provides benefits to about 70 million Americans and is overwhelmingly popular across ideological lines. But as Fatima Hussein of the Associated Press reports, the program "also looks more threatened than ever."
The program's trust funds do indeed face depletion by 2034, according to the latest annual report from Social Security's trustees. At that point, the combined trust funds would be able to cover 81% of obligations, leaving beneficiaries facing a painful cut unless Congress acts.
Trump and the White House claim the administration has shored up the program. "By massively improving the customer service experience through technological improvements, preventing illegal aliens from accessing benefits, and delivering no taxes on Social Security through the One Big Beautiful Bill - President Trump has Made Social Security Great Again," White House Assistant Press Secretary Liz Huston said in a statement.
Despite such claims, the outlook for the program has only grown shakier since he returned to office. As Hussein writes: "Agency staffing has been slashed. Unions and advocacy groups concerned about sharing sensitive information have sued. Administration officials, including the president, have falsely claimed that millions of dead people were receiving Social Security benefits. Former top adviser Elon Musk said the program was a potential 'Ponzi scheme.'"
On top of that, the program's finances were likely weakened by the same big bill the White House touted. The new GOP law didn't actually eliminate taxes on Social Security benefits, as Trump often claims - it just added a new tax break for seniors that applies to all income. But that change and other elements of the Republican law are projected to speed the insolvency of the Social Security trust funds.
An updated analysis that factors in the new law projects that the Social Security trust fund for retirees will be insolvent by late 2032, just seven years' time, compared with previous projection of early 2033.
Social Security still faces other potential threats, including a possible push toward privatization - an idea that Treasury Secretary Scott Bessent touched on this month when he said that new "Trump accounts" for newborns may serve as a "backdoor" to privatizing the program. Bessent later said that he meant the new accounts would supplement Social Security. "This is not an either-or question: our Administration is committed to protecting Social Security and to making sure seniors have more money," he said. Democrats and Social Security advocates still say Bessent let the veil slip on Republicans' real agenda: to privatize the program.
What's ahead: There are plenty of options for fixing Social Security's finances as it moves toward and beyond the century mark. "Social Security is 90 years old, but it hasn't had a comprehensive checkup since it was 52 (in 1983) - and it is showing its age," the Committee for a Responsible Federal Budget said in a post on Thursday, adding that "the most important solution is political will. Politicians need to be honest with the public on the challenges the program faces and what it will take to ensure the program can pay full benefits past the age of 100. Time is running out."
In the meantime, beneficiaries stand to get a 2.7% cost-of-living adjustment in 2026, according to the latest estimate from the Senior Citizens League, an advocacy group, while other estimates come in slightly lower.
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Fiscal News Roundup
- U.S. Producer Prices Surge in July as Trump Tariffs Push Costs Higher – Associated Press
- Businesses Have Been Eating Trump's Tariffs. That's Starting to Change – CNN
- Veggie-flation Strikes, With a Warning for Grocery Prices – Axios
- As Trump Berates Goldman, Other Economists Agree That Higher Tariff Inflation Is Coming – CNBC
- Trump Pushes 'D.C. Security Fund' as Democrats Vow to Fight – Punchbowl News
- Trump Says Social Security Is Stronger, but Signs of Trouble at the Agency Mount – Axios
- Newsom Announces California's Own Redistricting Push to Counter Texas – CNN
- Texas Democrats Signal They Are Poised to End Redistricting Walkout – Politico
- Proponent of Medicaid Cuts Set to Brief House Republicans as They Plot Another Megabill – Politico
- Tariffs Set to Hit Ireland, Where U.S. Drugmakers Play Tax Games – New York Times
- Blue States Hunt for Ways to Wring More Taxes From the Wealthy – Wall Street Journal
- Veterans May Be Denied Food Stamps Under Trump's New Tax Law – The Hill
- The Auctioneer and the Treasury Chief: Billy Long's Quick Fall at the I.R.S. – New York Times
- Donald Trump Says He Has 'Three or Four' Candidates in Mind to Lead the Federal Reserve – Financial Times
- Congress Is Lukewarm on RFK Jr.'s Plans. In the States, They're Catching Fire. – Politico
Views and Analysis
- Social Security Has Existed for 90 Years. Why It May Be More Threatened Than Ever – Fatima Hussein, Associated Press
- Social Security Is Turning 90. Here Are 6 Myths About It That Won't Go Away. – Mark Miller, New York Times
- As Social Security Turns 90, It's Racing Towards Insolvency – Committee for a Responsible Federal Budget
- Fed Faces High Bar for Big Cuts Despite White House Pressure – Colby Smith, New York Times
- Where Is Bessent Pulling These Rate Models From? – John Authers, Bloomberg
- Cooking the Inflation and Jobs Numbers – Robert Kuttner, American Prospect
- Robert F. Kennedy Jr.'s Impact So Far: 'The Worst Possible Case' – Emily Oster and David Wallace-Wells, New York Times
- Drug Approvals Hit an FDA Wall – Wall Street Journal Editorial Board
- Social Security Is 90 Years Old. We Are Making It Smarter, Better, Faster Under Trump – Frank Bisignano, Fox News
- The One Big Beautiful Bill Cuts Taxes Across the US, New Analysis Finds – Garrett Watson, Tax Foundation
- A Tax Law for Manufacturers, but a Trade Policy Against Them – Daniel Bunn, Tax Foundation
- What Declining Cardboard Box Sales Tell Us About the US Economy – Ilena Peng, Bloomberg Businessweek
- Argentina Is an Example of What Happens When a Country Manipulates Inflation Data – Sally Helm, NPR