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The Hot Housing Market Makes the Fed’s Inflation-Fighting Job Even Tougher

With mortgage rates going up but underlying demand still strong, policymakers may have to hike higher.

Townhouses under construction in Tampa last year.

Townhouses under construction in Tampa last year.

Photographer: Octavio Jones/Reuters

Federal Reserve officials are counting on higher mortgage rates to throw cold water on the frenzied housing market as they work to tame the highest inflation in decades. But the market may not cool fast enough.

While rising rates and higher home prices are starting to lock some buyers out and weaken sales, pent up demand for housing, combined with a stark shortage of homes on the market, is still putting upward pressure on prices. A dearth of housing inventory also means that rising rates may not slow homebuilding activity as much as they have in the past.