Mortgage rates stay flat
By Holden Lewis • Bankrate.com

Mortgage rates have been remarkably stable for more than a month, as Wall Street and the Federal Reserve have concluded anew that inflation has been cast overboard and isn't likely to pop to the surface soon.

The benchmark 30-year fixed-rate mortgage fell 1 basis point to 5.87 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.34 discount and origination points. One year ago, the mortgage index was 5.97 percent.

The 15-year fixed-rate mortgage rose 1 basis point to 5.19 percent. The one-year adjustable-rate mortgage fell 2 basis points to 3.85 percent.

Rates on 30-year mortgages have remained in a narrow range since early December, climbing as high as 5.92 percent on average the week of Dec. 10 and falling as low as 5.81 percent the following week. The steady rates reflect a belief that inflation has been tamed, at least for now, and the Federal Reserve won't raise interest rates for months and maybe not until 2005.

Several influential employees of the Fed spoke over the first weekend of the year before the American Economic Association, meeting in San Diego. The speech that got the most attention was from Ben Bernanke, a member of the Fed's board of governors and a member of the rate-setting Open Market Committee.

The consensus among private-sector economists is that the economy will grow at a 4 percent rate this year, and Bernanke says he generally agrees with that estimate. That rate of growth, coupled with the economic stimulus from today's low rates, normally would result in inflation -- which would drive up interest rates. But Bernanke doesn't believe inflation is coming back anytime soon, so low interest rates are justified.

The latest available inflation rate, 1.1 percent for the 12 months ending in November, is "perhaps at the bottom of the acceptable range," Bernanke says. And if inflation is so low that he doesn't want it to fall further, he's not going to rush out and raise interest rates.

Why is inflation so low? It comes down to the labor market, in Bernanke's view. Workers are becoming ever more productive, and the economy isn't creating jobs fast enough. "When one looks at the full range of information available, the labor market looks (if anything) weaker than a 6 percent unemployment rate suggests," he says.

He and other economists guess that a lot of people have given up trying for work and thus aren't counted among the unemployed. Whatever the explanation, there is plenty of room for improvement in the employment situation: According to the Bureau of Labor Statistics, 62.5 percent of the working-age U.S. population has a job now, compared to peaks of 64.9 percent in 1999 and 2000. And the population has increased more than 10 million since then.