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As the Federal Reserve continues its fight against inflation, the outlook on where mortgage rates will end up in the new year is looking far less grim. Economists predict rates could land anywhere from 5.7% to 6.8% depending on how quickly inflation cools and whether the Federal Reserve manages to put an end to one of its most intense rate hike campaigns in decades. While the modest improvement in rates may give some folks on the sidelines relief, affordability challenges will continue to burden most buyers in the market. In an effort to bring down inflation to 2%, the Federal Reserve has raised its short-term benchmark interest rate 11 times since March 2022, putting upward pressure on mortgage rates. The current rate of 5.25% to 5.50% is its highest in 22 years. The effects rippled across the housing market, said Lawrence Yun, chief economist of the National Association of Realtors®. Market investors moved in anticipation of most Fed hikes, which caused mortgage rates to jump nearly to 8% as recently as a month ago. According to Yun, three factors could influence any Fed decision to cut rates. First, it’s the job market — which has been softening each passing month. "Jobs are being added, but you can see it’s becoming lighter and lighter, and the Federal Reserve certainly does not want to see that number turn negative," Yun said. Second, the Fed may extend help to community banks, which have been suffering from high rates as their special credit line ends in March. Lastly, Yun expects that a slowdown in market rents should be a key driver of improvements in inflation.