Higher interest rates won't increase consumer demand and won't reverse housing deflation.
Deflation is how the Market removes surplus capacity. Thus, there is no magic bullet such as changing interest rates that will solve the current deflationary depression.
Nor is there a pain-free solution.
The solution will occur, of course, but it will be painful. Prices will drop until enough capacity is removed from the industrial, transportation, service, housing, office, and retail industries.
If you want an easy Gedanken mental thought experiment to illustrate the above, simply imagine yourself walking in to a bank to ask for a commercial loan for a building based upon future rental rates to your tenant increasing.
After you've had a good chuckle realizing that no banker would make such a loan any longer, you'll catch on to the stagnant or falling price zeitgeist that is making its way through the entire planet's economy.
That's deflation...the one thing that a fiat currency and central banks were supposed to be able to solve...turns out to be more difficult to do in practice than in theory.
The few price falls other than real estate are mostly due to commodity prices falling after last year's bubble. The true measure of a deflation "zeitgeist" is when people postpone purchases because they think the prices will fall more later. Computer prices don't count since they always fall regardless of inflation mentality. The velocity of money can change very rapidly so once the inflationary boom kicks in it will quickly overwhelm the feeble fumbling Fed.
The fallout of monetary failure is never going to be monotic. Basically we will have a rapid succession of monetary booms and deflationary episodes until the financial breakdown as described in the article. Last year's commodity bubble was just a taste. The next will be higher and more damaging to the economy. Whether the Fed kills it with tighter money or it overreaches and and pops, commodity prices and credit will come crashing down after that so you will be able to talk about deflation again or, if the inflationary boom goes high enough, you will assign blame for the financial collapse anywhere but the Fed's excessively low rates.