Mar 8, 2024
Inflation can arise from a multitude of factors, such as increased consumer spending, rising labor costs or energy prices, supply chain disruptions and monetary and fiscal policies. But according to Rep. Maxine Waters (D-CA), one factor stands out above all — housing.
Waters, the ranking member of the House Financial Services Committee, expressed her concerns during a recent committee hearing with Federal Reserve Chair Jerome Powell. She noted that America is “not out of the woods yet” with regard to inflation and emphasized that housing “is still the number one driver of inflation.”
Advertisement
Peter Schiff, CEO and chief global strategist at Euro Pacific Capital, challenged Waters’ rationale.
“As usually @RepMaxineWaters is wrong. Housing is not the main driver of #inflation. Congressional deficit spending and #Fed money printing are the drivers,” he stated in a post on X. “Housing just goes along for the ride. However, misguided government housing policy also drives home prices and rents higher.”
Deficit spending and money printing
Deficit spending, where expenditures exceed revenue, is a widely recognized problem in the U.S.. In fiscal year 2023, which ended Sept. 30, the federal government spent $6.13 trillion and collected $4.44 trillion in revenue, resulting in a deficit of $1.7 trillion.
The trend has persisted into fiscal year 2024, with the federal budget deficit already surpassing $531 billion as of Jan. 31.
If the government increases spending without a corresponding increase in production, it can lead to demand-pull inflation. This occurs when the demand for goods and services exceeds supply, causing prices to rise.
Money printing can also cause inflation by increasing the amount of currency in circulation without a corresponding increase in goods and services. This excess money chases the same amount of products, leading to higher prices.
Advertisement
As part of its response to the economic fallout from the COVID-19 pandemic, the Fed implemented quantitative easing, which significantly increased the money supply.
To tame the subsequent inflation, the Fed has tightened monetary policy by raising interest rates and reducing its balance sheet.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Housing
While Schiff pinpointed two critical inflationary factors, Waters' perspective on housing inflation is not without merit.
According to the Bureau of Labor Statistics, the U.S. consumer price index increased 3.1% in January 2024 compared to a year ago. The so-called core CPI, which excludes volatile food and energy prices, rose 3.9% over the last 12 months.
Notably, the report showed that the shelter index increased by 6.0% in January compared to the same month a year ago, accounting for “over two thirds of the total 12-month increase” in core CPI.
More specifically, rent of primary residence increased by 6.1% year over year, while owners’ equivalent rent of residences rose by 6.2%.
Advertisement
It's worth pointing out here that there is a lag in the Fed's measure of housing market inflation, which even Powell has acknowledged. While Fed data says rent prices have been steadily rising, other analyses may show that rents are moving the opposite way.
Regardless, Powell recognized the housing market’s difficulties, describing it as “in a very challenging situation.”
“You have this longer run housing shortage, but at the same time you’ve got a bunch of things that have to do with the pandemic, and the inflation and our response with higher rates,” he elaborated.
A recent Realtor.com analysis indicates a shortfall of 7.2 million homes in America's housing supply.
The debate over housing affordability and the severe home shortage has also captivated social media audiences. For instance, TikTok influencer Mikey Taylor suggested that an annual income of $200,000 is necessary to rent a 790-square-foot unit in Los Angeles.
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
