Students finish strong in Fed Challenge Competition

A cross-disciplinary team of Lehigh students finished as a finalist and runner-up in the preliminary round of the College Fed Challenge Competition recently in Baltimore.

Lafayette College took top honors in Baltimore while the University of Delaware—last year’s winner—joined Lehigh as the other finalist in the preliminary round, which included 17 teams from colleges in Pennsylvania, Maryland, West Virginia and the District of Columbia. Lafayette went on to win the district title over the University of North Carolina and James Madison University.

During the annual challenge, teams of students simulate a Federal Open Market Committee (FOMC) meeting. The competition includes a lengthy presentation by participating colleges, followed by a rapid-fire question-and-answer session conducted by a panel of expert judges.

The Lehigh team consisted of Christopher Addy ‘10, Kristin Giglia ‘11, Soe Ha ‘10, Jennifer Nagel ‘10 and Yousef Janjri ‘11. Addy and Giglia major in economics in the College of Arts and Sciences. Janjri majors in integrated business and engineering, Ha in accounting and finance, and Nagel in economics, all in the College of Business and Economics (CBE).

Hubert Dagbo ‘12, David Gritz ‘12, and Brian Paul ‘12 also participated in this year’s challenge and helped with different facets of the team’s preparation leading up to the competition.

Since it was established in 1913, the Federal Reserve, the U.S. central bank, has charted the nation’s monetary policy and promoted its economic goals. Two Fed committees set policy. The Board of Governors helps establish discount rate and reserve requirements, while the Federal Open Market Committee (FOMC) helps determine open market operations.

Addressing nontraditional policy measures

According to the Federal Reserve’s Web site, open market operations include the purchase and sale of U.S. Treasury and federal agency securities and, as such, they are the Fed’s “principal tool” for driving monetary policy. One of the most important actions the FOMC can take is determining the federal funds rate, the interest rate at which banks lend money to other banks.

“The program’s main directive is to make a recommendation for the Federal funds rate, but given the extraordinary measures taken by the Federal Reserve Bank in the face of the financial crisis and the current state of the recovery, we felt some of the more nontraditional policy measures needed to be addressed,” says Nagel. “In addition to discussing current economic conditions, we focused on inflation expectations, the timing and language surrounding the tightening of credit, the future of lending facilities, and different methods of tightening policy.”

That comprehensive approach won accolades from many judges, says Tony O’Brien, professor of economics in the CBE and adviser to Lehigh’s Fed Challenge team.

“The judges were extremely complimentary about our knowledge of the issues and the way we portrayed the actual dialogue that takes place between committee members,” says O’Brien. “They were really engaged in our presentation, and that had a lot to do with weeks of rehearsing and some early feedback we got from the economic policy team at Barclay’s.”

A test run, a change of gears

Earlier in the semester, the Fed Challenge team traveled to New York City and the American headquarters of Barclay’s, a major global financial services provider. While there, they conducted a test run of their presentation in front of an economic team led by Larry Kantor, the global head of research at Barclay’s Capital and a former professor in the CBE.

The Lehigh team entered that day heading in one direction, but changed gears completely after Kantor and his economic consultants recommended a number of alternatives. That change of approach was responsible for the team’s strong finish in the Fed Challenge, says Nagel.

“We gained a much better understanding of the workings of an FOMC meeting, which helped us shape our actual presentation,” says Nagel. “The feedback also helped us comprehend the topics discussed by the presidents of the regional banks and the governors, as opposed to the staffers, and gave us an indication that we needed to be more forward-looking in our thoughts and discussions.”

“The visit to Barclay’s definitely helped the team focus better,” says O’Brien. “Kantor and his analysts drilled our students and said we were taking too much time talking about events that happened in the past—a dialogue that would never take place during a real FOMC meeting. And his advice to sharpen the contrast between our team’s individual opinions was invaluable because it caused us to rethink the way we were presenting our case.”

At the Fed Challenge, each participating team is comprised of five students, each of whom represents a different member of the FOMC. In reality, the committee consists of twelve members that include the Fed’s Board of Governors, the president of the Federal Reserve Bank of New York, and a rotating panel of four of the remaining eleven Reserve Bank presidents.

The FOMC meets eight times a year, anticipating short-term economic and financial conditions that could affect monetary policy. During the Baltimore contest, the Lehigh Fed Challenge team ultimately decided to replicate an actual board meeting in which each of the five students participated in a pre-scripted debate on such topics ranging from the commercial real estate market to inflationary concerns.

The judges for the College Fed Challenge Competition were Alan Cox, executive director of the Maryland Coalition for Financial Literacy; Mary Ann Hewitt, executive director of the Maryland Council on Economic Education; Doug Lamdin, economics professor at the University of Maryland-Baltimore County; and Laura Brusca of the Maryland Council on Economic Education.

Photos by Ryan Hulvat