The trust funds for Social Security and Medicare are expected to be depleted by 2034, which could prompt the bond market to push Congress into action, according to a leading economist.
Social Security Strains May Spark Fiscal Crisis by 2034
The anticipated insolvency of the Social Security and Medicare trust funds by 2034 could serve as a catalyst for significant changes, stated Bernard Yaros, the lead U.S. economist at Oxford Economics, as reported by Fortune. This could lead to a “fiscal crisis” if not addressed, he warned.
Yaros pointed out that President Donald Trump‘s policies, including tariffs and cuts to Medicaid and food assistance, could signal a “tightening bias” during his second term. However, a federal appeals court recently struck down most of Trump’s reciprocal tariffs, potentially impacting the future of his trade policy.
Bond Vigilantes Could Force US Fiscal Reforms Ahead
The economist highlighted the 2030s as a period of anticipated fiscal tightening, with cuts to non-discretionary programs like Social Security.
Without adjustments, the trust funds are projected to run dry, forcing steep benefit reductions — including an immediate 19% cut to Social Security. Yaros forecasts that by mid-century, such cuts would bring fiscal transfers down to 11% of GDP, rather than climbing above 15% if left unaddressed.
Yaros cautions that adverse fiscal developments could spark a selloff in the U.S. bond market, pressuring Congress to reconsider reforms. The scenario highlights the sway of bond investors—often called "bond vigilantes"—in influencing legislative action.
However, Analysts at Piper Sandler downplayed the influence of bond vigilantes, noting that the bond market has neither curbed federal deficits nor deterred Trump from pursuing his tariff policies, even after his firing of Fed Governor Lisa Cook.
Younger workers risk $110 K loss without reforms
The potential insolvency of the Social Security and Medicare trust funds has been a growing concern. In August, the Trump administration warned that a reversal of President Trump’s tariffs could threaten federal benefits such as Social Security and Medicare.
Earlier in July, the Cato Institute projected that the Social Security Trust Fund could run out of funds by 2030, potentially leading to a crisis for the program.
The institute warned that without reforms, young workers may have to contribute much more throughout their careers to sustain Social Security, potentially losing the equivalent of $110,000 in lifetime earnings through increased taxes and/or reduced benefits.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
