What does the Fed have up its sleeve?

The minutes of Federal Reserve meetings often give us subtle clues about what the Fed's position is on key issues and what steps they are taking to bolster our economy.

The grand debate being discussed by the Fed is deflation vs. inflation. The Fed's move to lower interest rates to near zero is a clear indication that their primary concern is to stop the deflationary cycle caused by our current recession. The only way to do this is to reinflate our economy. To this end the Fed and lawmakers are creating stimulus packages to jump start the economy and turn it around.

At the moment we are in a downward price cycle with the prices of raw materials falling at the wholesale level and deep discounts at the retail level. To turn this around requires a change in perception. So now the Fed and policy makers will need to convince the public that the deflationary cycle is ending and that a little inflation is a good thing.

Fed Chairman, Ben Bernanke, prefers "flexible" inflation targeting in which an inflation target is tied to a fixed time horizon. So I guess we can infer from this that we will have inflation for a fixed time, then what? There seems to be no consistency in Fed policy at the moment. They seem to be flying by the seat of their pants.

What do you think about this?