Janet Yellen, of the San Francisco branch of the Federal reserve bank is using the term “tepid” to describe the state of the current march out of recession.   It’s not the first time I have  heard fed officials use this particular term, and I think it is very accurate.

The problem is a simple one, and Yellen hits it right on the head: employment.  She expects employment to be a problem for the several years as the economy claws it’s way out of this recession.

From Market Watch, the problem is framed quite squarely:

“Inflation hawks are worried that the Fed’s near-zero interest rates and the trillions in U.S. dollars dumped into the economy via unusual stimulus programs, plus burgeoning federal deficits, will lead to dangerous inflation in coming years.

On the other side of the spectrum, some policy makers and economists fret that economic slack and pressure on wages raise the specter of deflation, or a sustained drop in prices.”

Whether the conspiracy theorists (who abound on the MarketWatch posting board) want to believe it or not, our continuing loose monetary policy has done marvelous at abating a potential implosion in the economy.   It’s stuff straight from the New Keynesian school of economics.  Of course, the Chicago School is fuming over the current policy, but, in my opinion, it was the ridiculous notions concerning efficient market theory and it’s bastard offspring the CAPM that wrought this recession upon us, or at least the designers of exotic derivatives relied upon Efficient Market Premise to draws the underpinnings of the current raft of derivative, specifically CDS’s.

Anyway, Yellen is worried about deflation, which is a disastrous economic malady.

Yellen commented on the bifurcation of views about inflation that has emerged lately, saying that “in my career, I have never witnessed a situation like the one that exists now, when views about inflation risks have coalesced into two diametrically opposed camps.”

Deflation?  Inflation?  You decide

She placed herself in the camp that worries more about falling, rather than accelerating, prices. “My personal belief is that the more significant threat to price stability over the next several years stems from the disinflationary forces unleashed by the enormous slack in the economy,” she said.