Feb 20, 2024
Inflation impacts everyone by eroding the purchasing power of money. However, independent presidential candidate Robert F. Kennedy Jr. asserts that it is the poor who suffer the most from rising price levels.
“Inflation is the most pernicious and insidious regressive tax on the poor,” Kennedy stated in an interview with Fox Business.
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To combat rampant inflation, the U.S. Federal Reserve has implemented substantial interest rate hikes. However, Kennedy contends that this strategy carries considerable repercussions, emphasizing, “high interest rates are also an enormous tax on the poor.
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“The access to capital now that I'm seeing in poor neighborhoods all over the country is bankrupting small business in those neighborhoods.”
Housing affordability
Kennedy delved into the issue of housing — a sector intricately linked to interest rates.
“Our kids cannot get into a home because the interest rates have gone from 3% two years ago to — for them, the real cost — about seven-and-a-half or 8% to buy a home,” he said.
Although the average rate for a 30-year fixed mortgage, as reported by Freddie Mac, has recently decreased to 6.77%, it remains significantly higher than rates early in the pandemic, which were below 3%.
Moreover, Kennedy pointed out the exacerbating factor of higher property prices.
“The cost of housing has gone from $215,000 — average cost in this country — to $400,000,” he noted, adding that this results in “an entire generation of kids that is not getting into homes.”
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Data from the Federal Reserve Bank of St. Louis indicates the median sales price of houses sold in the U.S. was $417,700 in the fourth quarter of 2023, marking a substantial increase from $273,600 a decade ago.
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America's 'long-term issue'
High interest rates are often viewed as a remedy for inflation. The consumer price index increased by 3.1% in January 2024 from a year ago, according to the Bureau of Labor Statistics. This is a notable improvement from the 9.1% annual increase recorded in June 2022, which was the highest since 1981.
However, Kennedy believes that both inflation and rate hikes are mere stopgaps for a more significant issue.
“The long-term issue is spending, because inflation and high interest rates are just medicine and they both are poisonous medicines,” he argued.
As a result, he suggests that “we need to get spending under control” and “dramatically reduce” military spending.
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Kennedy highlights a critical issue. 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.
Deficit spending, where expenditures exceed revenue, has continued into fiscal year 2024. The federal budget deficit has already exceeded $532 billion as of Feb. 20.
Continued deficit spending could lead the U.S. to accrue debt. The national debt stands at a staggering $34 trillion.
With elevated interest rates, the cost of servicing this debt is substantial. An analysis from Bloomberg estimates the annualized interest payments on U.S. government debt have exceeded $1 trillion.
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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.
