Can Monetary Policy Tame Rent Inflation?

Liu, Zheng; Pepper, Mollie

Journal Article

Can Monetary Policy Tame Rent Inflation?

Abstract: Rent inflation has surged since early 2021. Because the cost of housing is an important component of total U.S. consumer spending, high rent inflation has contributed to elevated levels of overall inflation. Evidence suggests that, as monetary policy tightening cools housing markets, it can also reduce rent inflation, although this tends to adjust relatively slowly. A policy tightening equivalent to a 1 percentage point increase in the federal funds rate could reduce rent inflation as much as 3.2 percentage points over 2½ years.

Keywords: monetary policy; rent; inflation; shelter inflation; rental housing;