Federal Reserve Chair Jerome Powell left the door open to a future interest rate hike on Wednesday, but most housing professionals are hopeful that the Fed may be done hiking interest rates for 2023.

Tight financial and credit conditions, slowing inflation and high 10-year Treasury yields – the primary driver in the rise of longer-term interest rates – will likely discourage the central bank from a further rate hike this year, economists and mortgage professionals said. 

In turn, this will provide relief and bring down stubbornly-high mortgage rates.

“I think the one thing I take away from today is that financial and credit conditions are tighter now, which was different than before,” said Logan Mohtashami, lead analyst for HousingWire. “Unless the 10-year Treasury yield falls considerably, the stock market rallies and home sales start to take off again, December should be off the mark.”

The 10-year Treasury yield, which acts as a benchmark for mortgage rates, fell to a two-week low at 4.766% on Wednesday after the Fed held interest rates steady in a range of 5.25%-5.5%. 

Fed officials forecasted one more rate hike in 2023 in its September dot-plot estimates, which shows the range of forecasts for where interest rates could end up. The majority of Fed officials had expected interest rates to finish the year at around 5.6%. 

Marty Green, principal of Polunsky Beitel Green, described the Federal Reserve as a “blackjack player with two face cards.” 

“The only sensible play at this meeting was to hold pat,” Green said. “It is becoming increasingly clear that the Fed is indeed done raising rates in this cycle. While the cycle has been inordinately painful to the mortgage industry, with another interest rate pause, we should be at least one step closer to some relief in 2024.”

Inflation has fallen significantly since hitting a four-decade high last summer, but consumer prices have increased by 3.7% in September year-over-year, still climbing faster than the Fed’s target of 2%. 

The economy is starting to slow down and inflation will moderate at a pace that suits the Fed, said Melissa Cohn, regional vice president of William Raveis Mortgage.

“We’re coming up against Nov. 17, when the government funding ends,” Cohn said.

Coupled with the Israel-Hamas war, the central bank could keep the Fed’s pause on another interest rate hike for a third consecutive month after its next meeting on Dec. 12-13.

“Even though Q3 economic growth came in quite strong, and several job market indicators continue to show strength, so long as inflation continues to come down, the Fed is likely to pause at this level for some time,” Mortgage Bankers Association‘s SVP and chief economist Mike Fratantoni said.

Fratantoni went a step further in anticipating the Fed to cut interest rates in the second quarter of 2024.

“If the Fed does indeed move to cut rates next year and signals its intent to do so, mortgage rates should trend downward. Our forecast calls for this to happen, which would support a somewhat stronger spring housing market,” Fratantoni said.

Powell, however, made clear on Wednesday that the committee is “not thinking of rate cuts” and is intent on bringing inflation down to 2%.

The best-case scenario is for the Fed to keep rates steady in December, said Raunaq Singh, founder and CEO of Roam, a platform for affordable homeownership.

Depending on November’s inflation readings, a slight rate hike in December is also likely, he noted.

“This will exacerbate the housing affordability crisis, which has already reached an all-time low,” Singh said. “Median monthly mortgage payments are at an all-time high. More than 50% of mortgages have monthly payments north of $2,000, whereas two years ago that number was more like 18%.”

While the odds of an additional rate hike is low, the Fed is expected to keep the option on the table, Danielle Hale, chief economist for Realtor.com, raised a cautious view.

“As long as a rate hike is on the table, investors are likely to position cautiously, and the tendency for rates to remain steady to slightly higher remains,” Hale said.

Improvement in data should reflect lukewarm readings on the economy and lower inflation, which will be more important drivers of lower rates, she explained. 

At the final FOMC meeting in December, two months of inflation and labor market numbers will be reviewed to determine the direction of future interest rates.