This paper studies the effects of monetary policy on housing rents. We provide comprehensive measures of rent inflation at a micro-geographic scale by constructing a new repeat-rent index. Using our rent index, we estimate the impulse responses of rents to monetary policy shocks. We find that, on average, monetary tightening increases rents. The effect is driven by a shift in demand from the owner-occupied market to the rental market. Areas where household borrowing constraints are more binding, where renter and owner markets are more segmented, and where landlords are more levered experience greater rent increases following the same contractionary shock.

Recent empirical work finds that contractionary monetary policy raises U.S. housing rents. I show that this response reflects a shift in housing demand toward renting in segmented markets: tighter credit pushes constrained households from ownership into renting, and rents rise when rental supply is too inelastic to absorb the resulting demand shift. I quantify this mechanism in a general equilibrium model estimated on U.S. data from 1975 to 2019. When the central bank targets shelter-inclusive PCE inflation, the decline in goods inflation from the tightening is partly offset by rising rents, inducing further tightening and increasing the output cost of measured disinflation. A simple interest-rate rule that instead responds to goods inflation and real house-price growth lowers the sacrifice ratio by approximately 25% relative to the estimated PCE rule.