The Fed doesn't think that it's that black or white. If they see deflation, then they airdrop money on the economy. Well, if they drop only enough cash, and not too much, then they stop deflation without causing hyperinflation.
Drop too much cash and they give us hyperinflation. Don't drop any cash and they give us Japan-style deflation. Get it just right and the economy booms in spite of dim-witted politics in Washington (e.g. budgets based upon the prior year plus some increase rather than zero-based and jusitfied each year).
So the Fed is microscopically examining inflation. When they see the slightest uptick in inflation after a cash-dump, they raise interest rates a quarter point. Then they wait. Did the PPI go down too much (deflation)? They adjust.
Then they repeat again. Looking back, they are averaging pretty close to their target rates for inflation and GDP growth.
This is risky. The whole thing has a soft trigger. But it is, in theory, sustainable.
For me, I'd prefer to see slightly higher inflation and GDP growth. Increase the speed of money. Get people hired, keep people hired, give out raises (whether they pace inflation is another thing altogether), and encourage people to spend rather than to hoard.
The Fed is actually *more* conservative than me. They are clearly afraid of the whole thing running hard one way or the other. They've found a window of inflation versus GDP growth that they think that they can sustain and control even with ridiculous foreign trade deficits and federal budget deficits...and so far, the Fed has been right.
If I were put in charge, I'd up the window and risk factor just a bit more (but not much more). I think that the economy can take more stress, so I'd prefer to be a little closer to the overheating side than the ice-cooler side.