A top Wall Street economist says rate hikes are choking off new housing supply and reigniting shelter inflation
A warning from one of Wall Street's macroeconomists is sharpening a problem that mortgage brokers already feel on the ground: higher rates may be creating the very conditions that keep inflation and rates elevated.
Torsten Slok, chief economist at Apollo Global Management in New York, told clients over the weekend that the Federal Reserve faces a structural feedback loop.
"When rates are high, builders build less, and when fewer homes and apartments get built, rents go up, which pushes inflation higher and keeps rates high," he wrote.
He named it the "higher rates, higher rent doom loop."
The warning arrived days after the Federal Open Market Committee (FOMC) voted unanimously to raise the benchmark rate 25 basis points, pushing the target range to 3.75% to 4%.
With the Consumer Price Index (CPI) sitting at 3.4%, still well above the Fed's 2% goal, Chair Kevin Warsh, whose direction on rate policy mortgage professionals have been tracking closely since taking the helm in May, now faces the task of reining in prices without strangling the housing supply needed to ease them.
Michael Brenning, chief operating officer at eLend, says rapid swings in Treasury yields are forcing lenders to reprice loans multiple times a day, adding complexity to rate locks, margins, and borrower affordability. https://t.co/rjfKz690Ga
— Mortgage Professional America Magazine (@MPAMagazineUS) October 1, 2026
Why shelter costs complicate the Fed's calculus
The data makes Slok's case concrete. According to the Bureau of Labor Statistics, shelter rose 3% year-over-year, and owners' equivalent rent — the estimated cost of renting an owner-occupied home — accounts for roughly 25% of the entire CPI basket.
As Slok noted, that "re-acceleration in rents is a problem for the Fed because it puts upward pressure on inflation driven by higher rates."
US housing starts and their recent trajectory illustrate the supply-side squeeze. Privately owned housing starts in August fell 2.6% from July to an annualized rate of 1,275,000 units. That's 1.2% below August 2025 levels, per the Census Bureau.
Completions came in at 1,128,000 units, down 11.9% from July and 27.1% below August 2025.
Builders are facing additional pressure as they compete for skilled labor against the AI data center construction boom.
Melissa Cohn, regional vice president of William Raveis Mortgage in New York and a 44-year industry veteran, offered her unvarnished broker take on Fed meeting expectations.
"We all, in our hearts, pray that we hear something from the Fed saying that it's found a new way to tame inflation and lower rates, but that's just not the reality," she previously said.
Read more: Could mortgage rates hit 9%? One economist lays out the scenario
What brokers should expect next
Wall Street's near-term consensus is a hold. CME Group's FedWatch barometer placed the probability of no change at 76.2% on Monday noon, with a weak September jobs report reducing urgency for further tightening.
"For the Fed, this number should be the nail in the coffin for an October hike," Thomas Simons, chief US economist at Jefferies, said in a note after the Bureau of Labor Statistics released the data on Friday.
Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association (MBA), reached a similar conclusion.
"With inflation still too high, the Federal Reserve is unlikely to cut rates anytime soon. However, these data showing a softer job market may be enough to keep the Fed on hold at their October meeting."
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