to its benchmark interest rate, which raises borrowing costs for consumers and businesses alike. That should slow the economy and slash demand, eventually bringing down prices for some goods.
But rate hikes produce mixed results for rent prices, economists said. A slower economy and a potential reduction in consumer spending should put downward pressure on demand, causing prices to fall. However, rate hikes also lead to a rise in mortgage rates, which keeps some prospective homebuyers in the rental market as they await a better home buying opportunity, helping sustain demand and limit price declines.
"For most goods, the mechanism of rate hikes is pretty clear: Rate hikes cool the economy, cool demand and get price growth under control," Igor Popov, chief economist at Apartment List, told ABC News. "With rental prices, it's not so clear."Still, the breakneck pace of rising rents should come down over the remainder of 2022, the economists ABC News spoke with said.
Vidal, the New York City tour guide facing a roughly 70% rent increase, received some of that relief last month. His landlord changed plans, opting instead to raise the rent from $1,100 to $1,300 per month — a substantial increase of 18% but far lower than initially expected. The smaller price hike will allow Vidal to remain in his home, though it will still crunch his monthly budget, he said.
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