^*Dr. Bullard took office on April 1, 2008, as the chief executive of the Eighth District Federal Reserve Bank, at St. Louis. He is serving the remainder of a term that began on March 1, 2006. In 2009, he serves as an alternate voting member of the Federal Open Market Committee. Before becoming president, Bullard was vice president and deputy director of research for monetary analysis at the Federal Reserve Bank of St. Louis. He joined the Bank in 1990 as an economist in the Research Division. Bullard's research has appeared in numerous professional journals. He is currently an adjunct faculty member and Ph.D. adviser at Washington University in St. Louis. Bullard is also a co-editor of the Journal of Economic Dynamics and Control. Bullard received a bachelor's degree in quantitative methods and information systems and economics from St. Cloud State University in 1984 and a Ph.D. in economics from Indiana University in 1990.
Opinions expressed here are my own and do not necessarily reflect those of the Federal Open Market Committee members.

Abstract

The current financial crisis has been the key global economic event since it unfolded in earnest in early August 2007. The Federal Reserve has taken aggressive actions—both conventional and unconventional—to counteract the economic and financial fallout. Among these actions have been a number of new special lending programs created under section 13(3) of the Federal Reserve Act, which had not been employed since the 1930s. Academics, policymakers, and the general public have shown great interest in the Federal Reserve's new programs. In this paper, I emphasize two medium-term risks that the Federal Reserve now faces as it continues to confront financial market turmoil and recession. The two medium-term risks are opposites of each other, a "two-headed dragon." One is a Japanese-style deflation trap, and the other is a breakout of inflation like that seen during the 1970s. An explicit inflation target would help mitigate these very real risks.