Imagine having your foot on the throttle of the U.S. economy. Speed up, slow down, hold at a steady cruise. …

What a high!

OK, the Federal Reserve members are too proper to call it a high. But it would be a great sense of power.

Unless the economic tweaking doesn’t work as planned – which, at the moment, it is not. Phrases like “the yield curve is flattening” may make your eyes glaze over, but these are real pocketbook issues.

The Fed has been trying to nudge interest rates up to head off inflation. A year ago, three-month Treasury bills carried an interest rate, or yield, of 0.92 percent. Today, because of the Fed’s efforts, that has nearly doubled to 1.7 percent.

But the yield on the 10-year Treasury note has moved the other way – from 4.26 percent a year ago to 4.17 percent today.

The smaller the difference between the short- and long-term rates, the “flatter” the yield curve – a line connecting them on a graph them is more level. Long-term rates are almost always higher than short-term ones because investors who buy long-term bonds demand higher yields in return for tying their money up longer, but the difference between short- and long-rates is often much greater than today.

While the Fed has lots of influence over short-term rates, long-term rates are set by supply and demand as investors buy and sell long-term bonds. The market is keeping long-term rates relatively low because investors, focusing on the sluggish economy, don’t share the Fed’s concern about inflation.

This difference of opinion really matters for homeowners because short- and long-term rates are reflected in the two main types of mortgages.

Fixed-rate mortgages, which charge the same rate for the life of the loan, tend to track rates on 10-year Treasuries. Today, you should be able to find a good 30-year mortgage charging about 6 percent, about what you’d have paid a year ago.

Not many people expected this, including me. Late last year and early this year, it looked like the economy was going to perk up a lot faster than it has.

At 6 percent, the 30-year mortgage is a terrific deal. And with a little shopping around, you ought to find a deal for 5.5 percent.

Check out the Web site run by the rate-tracking firm, Bankrate.com: http://www.bankrate.com.

The other end of the spectrum is the one-year adjustable-rate mortgage, which can go to a new interest rate every 12 months.

Rates on these are governed by the short-term rates influenced by the Fed.

Starting rates for new ARMs have drifted up from about 3.8 percent in January to 4.3 percent today. For the first 12 months, you’d pay less on an ARM than on a 30-year fixed mortgage.

But it’s unlikely the ARM will pay off over the long run. In annual adjustments, ARM rates can change as much as 2 percentage points a year, or a total of 6 points over the life of the loan.

If the Fed keeps pushing short-term rates upward, one-year ARM rates are sure to follow. You’d be better off locked into a fixed-rate loan at 6 percent or less.

For this unexpected opportunity, you can be thankful the Fed hasn’t been able to influence rates as much as it would like to.

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(Jeff Brown is a business columnist for The Philadelphia Inquirer. E-mail him at brownjphillynews.com.)

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(c) 2004, The Philadelphia Inquirer.

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AP-NY-10-11-04 0620EDT