Now's not the time to begin talking about considering interest rate hikes in the medium term.

Christine Romer, the chairwoman of the White House Council of Economic Advisers, addressed a conference at the Woodrow Wilson School of Public and International Affairs at Princeton University. She says the nation’s high unemployment rate is a result of a severe drop in demand for goods and services and is not a reflection of longer-term structural changes in the economy. We shouldn't settle, in other words. From a New York Times piece:

"It reflects the fact that we are still feeling the effects of the collapse of demand caused by the crisis," she said. "Indeed, at one point I had tentatively titled my talk, 'It’s Aggregate Demand, Stupid,’ but my chief of staff suggested that I find something a tad more dignified."

Ms. Romer said that demand remained constrained by tight credit, state and local government budget shortfalls, subdued demand by consumers and foreign markets, and the inability to lower interest rates any further.

It is highly unusual for the White House to take a stance on short-term interest rates, which are the purview of the Fed, but Ms. Romer’s remarks carry weight because she is an authority on monetary policy and the Depression.
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Ms. Romer said that conventional estimates of G.D.P. might have underestimated the "true decline" in economic activity, helping to explain an otherwise "anomalous rise" in unemployment. She also argued that other factors -- the decline in manufacturing, rising joblessness among less-educated middle-aged men, and the shrinking of sectors like construction and finance -- were not enough to suggest that high unemployment would last.

By vigorously arguing that the current 9.7 percent unemployment rate was a matter of cyclical forces rather than structural ones, Ms. Romer was defending the Obama administration’s program of active intervention to stimulate demand. "I find it distressing that some observers talk about unemployment remaining high for an extended period with resignation, rather than with a sense of urgency to find ways to address the problem," she said, saying unemployment was not "the new normal."

She called for increasing aid to states, extending unemployment insurance benefits, stimulating small business lending and subsidizing energy-efficiency measures by homeowners.