In a speech Thursday, Fed Governor Daniel Tarullo said, "The relatively modest pace of recovery, the continued high rate of unemployment, subdued inflation trends, and well-anchored inflation expectations together suggest that the need for highly accommodative monetary policies will not diminish soon.”

Likewise, Donald Kohn, Fed vice chairman in a speech in San Francisco, said the Fed would raise rates, “in due course,” but he also noted that low rates "help offset the lingering restraining effects on economic activity and prices."

So far, rates have risen modestly, but analysts speculate they will likely become much more volatile down the road.

“It’s an uncertain type of market,” says Keith Gumbinger of HSH.com.

Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association, predicts that the Fed will have created a situation where there are days or weeks of low-rate opportunities, and other days and weeks when rates rise significantly.

Sources: The Wall Street Journal, Nick Timiraos (04/08/2010), and The Wall Street Journal, Jon Hilsenrath (04/09/2010)

The Fed, whose regular meeting began Tuesday, said that “housing starts have been flat at depressed levels” and “employers remain reluctant to add to payrolls” as a reason for extending the cap on interest rates.

“The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability,” the Federal Open Market Committee statement said.

Source: Bloomberg, Craig Torres and Scott Lanman (03/16/2010)