"The Federal Reserve will do whatever it takes to ensure the US does not fall into a deflation trap, its vice-chairman said on Wednesday..." including cutting rates to 0.5% next month. JP Morgan expects the same in January - yes, bringing the target rate down to zero for the rest of 2009.

Mike Shedlock comments "ZIRP did not help Japan and it will not help US banks either. In fact, the rate cuts appear to be counterproductive. However, one cannot rule out the Fed cutting rates to 0% anyway. Bernanke is in academic wonderland and appears to be hell bent on sticking with his models regardless of how poorly those models perform in actual practice."

Mark Thoma thinks this is a sign that the Fed is now drifting.

Paul Krugman, too, is not optimistic and also draws the Japan comparison.