November 27, 2012 / 11:40 PM / 7 years ago

College students, vying for trophy, pitch policy ideas to Fed

WASHINGTON (Reuters) - With the U.S. economy facing a potential recession and one of the Federal Reserve’s stimulus programs due to expire within weeks, tension gripped the central bank’s boardroom.

“We can’t sit back and do nothing,” said Erik Larsson, who was seated at the Fed’s mahogany and granite conference table. He suggested the central bank boost economic growth by pumping money into the banking system more aggressively.

“I’m not convinced this is consistent with price stability,” came the retort from Spencer Tirella, also seated at the table.

As Fed policymakers argue how best to help the struggling economy get back on its feet, the central bank held a competition on Tuesday where college students vied to make persuasive arguments on what the Fed should do, hoping to snag the trophy in the annual “College Fed Challenge.”

Some competitors advocated policies that are unconventional in monetary policy circles, such as fostering stronger economic growth by allowing a temporary burst in inflation.

Larsson and Tirella’s team, hailing from Bentley University in Waltham, Massachusetts, suggested the policy-setting Federal Open Market Committee increase the amount of U.S. government debt it buys to compensate for the expiration next month of another stimulus program known as Operation Twist.

Fed officials listened to their arguments attentively.

“I promise you I will report this to the FOMC when we meet in a couple of weeks,” said Elizabeth Duke, a governor at the central bank and one of three judges of the contest.

Members of the winning team, from Northwestern University in Evanston, Illinois, staged a brief rendition of an FOMC meeting, or Fed policy meeting, with each student playing the role of a real-life central banker.

Eric Zhang, who played Richmond Fed President Jeffrey Lacker, stole the show when he choked with exasperation over another student’s argument that pumping more money into the economy would not lead to higher inflation any time soon.

“It’s just a matter of time,” Zhang said, channeling Lacker’s well-known intolerance for inflation.

In the staged meeting, as in every real FOMC gathering this year, Lacker dissented against what he viewed as an overly lax monetary policy.

Duke assured the students they were judged on the persuasiveness of their arguments rather than their policy positions.

Beyond showing their smarts before some of the world’s most powerful policymakers, the students also took turns sitting in Fed Chairman Ben Bernanke’s chair and getting their pictures taken besides framed exemplars of historic greenbacks.

Above the conference table hung a chandelier modeled after one that hung in Napoleon Bonaparte’s Chateau de Malmaison.

Bernanke appeared to sense the impression the regal boardroom had on the students, many of whom said they planned to seek jobs at the Fed or on Wall Street, as he welcomed them in the morning.

“How do you like my conference room, eh?” Bernanke said. (Jason Lange)

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