barnaby33, you are correct that the conventional monetary easing (i.e. lowering the FED fund rate) will not help in a truly deflationary environment. The FED can lower the interest rate to zero and banks still wouldn’t lend. However, the current FED chairman has said many times that he is willing to use unconventional methods.
Another quote possible outcome is stagflation, where we have a deflation in asset prices and inflation in everyday living costs, like 70’s. I’m not sure what the FED would do under such a scenario given their mandate to maintain price stability while maximizing employment. The US economy will probably just muddle through.
