Return to readline version 6.x in Homebrew to fix Postgresql?

To answer the specific question.

You can switch between version of installed brew packages which are still around locally as explained in this question: Homebrew install specific version of formula?

To downgrade to readline 6.x the following command worked for me:

brew switch readline 6.3.8

Just reinstall postgresql94 package, the PostgreSQL 9.4 will use the new readline package:

brew reinstall postgresql94

NOTE: This answer might be outdated due to the changes in the branch (as reported by Andrew, the commit disappear)

To those who still facing this issue but cannot download the readline 6.3.8 from the homebrew package. You can try this solution. (Refer from here)

# Uninstall this incompatible version
brew uninstall readline

# Go to the local clone of homebrew-core
cd $(brew --prefix)/Homebrew/Library/Taps/homebrew/homebrew-core

# Move to the homebrew-core revision that had 6.3.8
git checkout 35fed817726f61a9d40c8420582f6fde59eb5f14

# Re-install readline
brew reinstall readline

# Switch back to HEAD
git checkout master

# Pin readline so this can't happen again
brew pin readline

For people coming from Rails with this issue you can just add the readline gem and run bundle install.

gem 'rb-readline' #Fixed readline error

I was able to overcome this with a blanket brew upgrade (upgrade all brew-managed packages).