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Lisa Abramowicz

Why Is the Cost of Rent Going Up? Ask the Fed

Interest rate increases are pricing people out of homeownership and pushing them into the rental market.

This key component of inflation isn’t going down.

This key component of inflation isn’t going down.

Photographer: Brandon Bell/Getty Images

The Federal Reserve just raised interest rates the most since 1994 to help dampen inflation, but its policies may end up fueling, not crimping, a chief component of consumer price increases: the cost of rent. 

Here’s why: As mortgage rates surge to an average of nearly 6% and home values keep climbing, all-in payments are rising by hundreds of dollars a month. A growing number of US consumers are getting priced out of homeownership. Instead of buying, more of them feel financially compelled to rent, which drives up that price as well.