Jul. 3--After rising as high as 5.6 percent in June, the interest rate on 30-year fixed-rate mortgages slid to 5.32 percent Thursday but still remains above record lows posted in the spring.

The Federal Reserve is attempting to keep interest rates low to try and muster a national economic rebound. One of its major objectives has been to breathe new life into the real estate market, which was the first part of the economy to have collapsed in the credit crisis.

Chapman University Economist Esmael Adibi said the Federal Reserve, by sharply lowering short term interest rates, has succeeded in keeping rates very low on adjustable rate mortgages.

But the Federal Reserve has much less control over the interest rates on 10-year bonds, the bond market that determines the interest rates on 30-year fixed rate mortgages.

Fixed mortgage rates have been bouncing around in recent weeks, Adibi said, based on bond investors' perceptions of the health of the U.S. economy. When interest rates rose in June, he said, it was because bond investors interpreted rising oil prices and positive retail reports to mean that the economy might rebound earlier than expected and trigger inflation.

But since then, Adibi said, other reports, including Thursday's negative report on unemployment, have given bond investors reason to believe the chances of inflation fueled by an early economic recovery are very slim.

Chris George, a Northern California mortgage banker and secretary of the California Mortgage Bankers Association, said he expects that because of the weak U.S. economy, fixed mortgage rates will remain low for at least the next six months.

"What ultimately will drive interest rates back up will largely be the recovery of the housing market," George predicted. As home sales start depleting the existing inventory of houses, he said, the federal government will change course and encourage interest rates to rise to dampen inflation.

But Wells Fargo Senior Economist Eugenio Aleman said there is a factor aside from the economy that also could cause interest rates to rise: the growing national debt. Foreign investors could be scared away from buying U.S. Treasury bonds, which would force the federal government to pay a higher yield to woo them back.

"The government is putting so much money into the system that at some point in time, even if the economy is weak, we might have inflation," Aleman said.

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