Fixed mortgage rates stand patINTEREST RATE ACTIVITY

Mortgage rates stalled as anxiety about inflation eased.

The benchmark 30-year fixed-rate mortgage remained at 6.74 percent, according to the Bankrate.com national survey of large lenders.

The mortgages in this week's survey had an average total of 0.25 discount and origination points. One year ago, the mortgage index was 6.91 percent; four weeks ago, it was 6.61 percent.

The benchmark 15-year fixed-rate mortgage rose 1 basis point to 6.41 percent. A basis point is one-hundredth of 1 percentage point. The benchmark 5/1 adjustable-rate mortgage increased 1 basis point to 6.48 percent.

Last week, the Federal Reserve's rate-setting committee decided to keep short-term rates unchanged, and explained that inflation had "improved modestly in recent months."

Then, the next day, the Fed's favorite measure of inflation came out -- and it showed that the rate finally had moved into the central bank's comfort zone.

When it comes to prices, the Fed pays closest attention to something called the personal consumption expenditures price index excluding food and energy.

Folks in the Fed's corridors call it "core PCE." Most observers believe that the Fed wants to keep the core PCE inflation rate between 1 and 2 percent -- the so-called comfort zone.

The core PCE price index had been above 2 percent every month since March 2004 -- more than three years out of the Fed's comfort zone.

So it was considered a victory late last week when the Department of Commerce announced that the index for May had fallen to 1.9 percent.

That news was enough to push bond yields down. Then there were failed terrorist attacks in the United Kingdom over the weekend, and nervous investors bought extra-safe U.S. Treasury notes, driving Treasury yields yet lower.

But mortgage rates adhered to their level; they already had dropped, and they didn't fall further.

"It's the flight to quality," says Michael Moskowitz, president of Equity Now, a mortgage lender based in New York City.

"And there's the understanding that inflation is getting under control, the Fed is right, we'll get 1 to 2 percent inflation that the Fed is comfortable with."