Average mortgage rates rose to an eleven-week high, with rates on a traditional 30-year fixed-rate mortgage averaging 6.08 percent with 0.6 points for the week ended May 29, Freddie Mac (FRE) said Thursday morning, up from an average of 5.98 percent one week earlier. The 10 basis-point jump reflected investors' growing concern over inflation, as record oil prices continue to fuel expectations for a reversal in recent U.S. monetary policy. While average rates continue to move higher, they remain below the average of 6.42 percent recorded for 30-year fixed-rate mortgages last year, according to Freddie Mac. "Mortgage rates drifted up this week over market concerns that the Federal Reserve Board may raise short-term rates later this year," said Frank Nothaft, Freddie Mac's chief economist, in a statement. "A recent working paper published by the Federal Reserve Bank of Minneapolis suggested that the recent rate cuts run a risk of unhinging long-term market expectations for inflation." Yields on the benchmark 10-year Treasury note jumped above 4 percent for the first time since January, as a result, reaching as high as 4.07 percent in early trading Thursday morning -- up seven basis points from yesterday's close. Rising bond yields tend to presage increases in most mortgage rates. Federal Reserve Bank of Dallas President Richard Fisher added fuel to the inflationary fire late Wednesday, suggesting that the Fed's monetary policy could change "sooner than later" if inflation expectations worsen. The Federal Open Market Committee has cut the federal funds target rate by 3.25 percentage points in the past seven months; the target rate now stands at 2 percent. "If inflationary developments and, more important, inflation expectations, continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic economic scenario," Fisher said in remarks delivered at San Francisco's Commonwealth Club of California Wednesday evening. The Financial Times reported Thursday that futures trading now pegs at 60 percent the chances of a rate rise by October; such speculation had stood at virtually nil less than three weeks ago, the FT reported, signaling a dramatic shift in investor expectations -- and likely continued upward pressure for mortgage rates in the weeks ahead. Disclosure: The author held no positions FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.