Inflation is a devaluing of the dollar because more dollars were printed and put in circulation. When the Fed relaxes reserve requirements (allowing the banks to issue more loans against their deposits), that has a similar short-term effect — the same effect you’d get if you went on a spending spree on your credit cards. But eventually the credit card bills come due, and you have to pay them off, so the spending spree comes to a halt, and your budget is reduced even more because now you’re paying off your cards, too. This feels like deflation, because you have less money to spend (since you’re now supporting debt).

A lower interest rate reduces your interest payments, thus reducing the effect — which is probably where that WSJ article is coming from. Unfortunately, it also encourages continued borrowing and spending. So (for example) if your interest rate were zero you could pile up the debt as high as you like, since there is no penalty whatsoever.

But there’s only so much money to go around, and as the debt gets higher and higher, the demand for money to borrow gets higher, and the supply of it gets lower, which means the creditors need a higher interest rate to be induced to commit their money to your spending spree. So you have a market force getting stronger and stronger requiring higher rates, balanced against a government policy that is artificially keeping rates low. When that happens, eventually the market forces always win.

So by lowering rates, in the short-term we can get the illusion of decreased deflation, but we just encourage more borrowing and spending, and more debt. We may put off the day of reckoning for a while, but when it hits, it will be even worse.