Conventional wisdom holds that if policymakers are too focused on controlling inflation, then employment, output growth and financial stability will suffer. But the conventional wisdom is wrong, according to the data.

After years of press predictions that the hot housing market was about to cool down, the inevitable seems to be unfolding. Compared with the same period a year earlier, sales of new and existing homes slowed over the first four months of 2006, inventories of unsold new homes rose sharply and new...