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What Is the Fed Doing in the Education Business?
Academy of Economics and Finance
Excelsior Hotel
Little Rock, Arkansas
February 12, 1999


ou may be wondering about my title,
for you probably think of the Fed as
being in the monetary policy business
and not the economic education business. I want to convince you that to do a good
job in the monetary policy business, we have to
also do a good job in the econ ed business. I was
eager to accept this speaking invitation, because it
gives me a chance to discuss a topic I’ve thought
a lot about. Economic education is far more
important for monetary policy than most people
Now, I know about you that most of you teach
college-level economics or finance. And you know
about me that I’ve taught economics for most of
my professional life, starting in 1963. What you
don’t know about me—or don’t know yet—is that
I have a real passion about economic education
from a policymaker’s perspective. As far as I am
concerned, economic education, broadly conceived, is absolutely central to the Fed’s monetary
policy responsibilities.
I’ll start by explaining why economic education is so important to me as a Fed policymaker,
why I consider it far more than just a nice little
gesture of community involvement. After I make
this case, I’ll outline some of the things we do,
from programs for elementary and secondary
school teachers and students to programs for
universities to public speaking generally to press
contacts to congressional testimony. All of these
efforts are designed in varying proportions to educate the public about what we do and to fulfill
our responsibility to be accountable in a democratic society. I don’t intend talking too long,
however, because I’m looking forward to taking

your questions, whether they’re about economic
education, the economy or the Fed.
Before I get further along, let me emphasize
that the views I express here are my own. Within
the Federal Reserve System, there are nuances of
view on almost every subject. Thus, my remarks
do not necessarily reflect official views of the
Federal Reserve System.

Let me introduce my topic this way: At each
meeting of the Federal Open Market Committee
(FOMC), which sets national monetary policy, the
end result is a decision on the intended or target
federal funds rate. This interest rate, as most of
you know, is of little direct importance. The rate
is for a one-day loan—an “overnight” loan in
market jargon—between two banks. It is a matter
of minor concern what rate one bank charges
another. But changes in the fed funds rate can
and do affect the 30-year mortgage rate, Treasury
bond rates, the stock market and a host of other
things we care a lot about, such as the rate of inflation of the general price level and the unemployment rate. How can an overnight interest rate have
such effects? If you don’t know—and a lot of
people don’t—and you’re curious, you are a candidate for the Fed’s econ ed efforts.
Let’s dig a bit further into this line of argument
by considering this proposition: If the FOMC’s
decision on the fed funds rate can affect the markets today, then an FOMC decision six months
from now to change the rate will affect the markets
at that time. And we know that expectations about
market prices in the future will affect people’s


behavior today. QED: the effects of monetary
policy decisions today on what people do, and
therefore on the economy as a whole, will depend
importantly on people’s expectations about the
future course of monetary policy.
For example, if you think the mortgage rate
will be going down in the future, you may delay
your house-buying plans. Clearly, both market
professionals and citizens thinking about buying
houses need to know a lot more than the Fed’s
latest decision on the fed funds rate. They need to
know about the Fed’s monetary policy strategy—
the likely course of Fed action that will determine
the fed funds rate in the future. If the Fed’s strategy
is misunderstood, either because of a low level
of economic literacy or because the Fed has failed
to convey its strategy clearly, then the markets
are going to make mistakes and be surprised at
Fed actions.
The economist views market mistakes as
leading to unnecessary economic inefficiencies.
The phrase “economic inefficiencies” has a nice
professional ring to it, but to firms and individuals
what it means is that somebody lost money from
a bad decision. People sometimes get angry when
they lose money unnecessarily. When such people
believe that Fed mistakes are the root of the problem, they do what they ought to do in a democracy—they call members of Congress to complain
and to demand action.
Of course, the Fed is not infallible, and it
deserves to be held accountable for its decisions.
If accountability is to be successful in yielding
better policy, however, those who oversee what
we do need to criticize us on the basis of a high
degree of knowledge about monetary policy. Educational institutions at all levels bear the main
responsibility for economic education, but I can
tell you from long experience as an economics
professor that most of my colleagues were interested in matters other than monetary policy. A
significant number of the economists with monetary policy expertise are employed by the Federal
Reserve System. We at the Fed have a lot to offer
in the economics education business, because we
have so many of these experts. If we opt out of
the econ ed business, then markets will function

less well than they might, citizens will more frequently make costly mistakes than they should,
and monetary policy will be less satisfactory than
it could be, both because of these mistakes and
because political pressures may push policy off
We should not underestimate the task at hand.
In a recent poll asking “What is the Federal
Reserve?” some people answered that it was a
branch of the military—like the Army Reserve.
One respondent replied that “the Federal Reserve
is a big tract of land set aside to protect exotic or
unusual species.” I’m embarrassed to say that
these answers remind me of some things I’ve
seen on final exams in my own courses. I don’t
think I need to multiply poll results to convince
you that the United States has a serious economic
literacy problem. You know that from talking with
students, their parents, friends and relatives, and
from reading newspapers and magazines. Taken
society-wide, economic illiteracy results in uninformed opinions and harms our citizens’ ability
to evaluate economic choices and make wise
I’m going to talk briefly about four overlapping
elements of the Fed’s efforts in the economic
education area: the Fed and the classroom, the
Fed on the stump, the Fed and the press, and Fed
reporting to the Congress. Then I’ll circle back to
my theme that the Fed must be in the education
business if monetary policy is to work well.

The Fed produces a long list of educational
resources, from web sites to conferences to competitions to publications. Some of our publications
are specifically designed as course materials;
others are more general, but may be useful in
some classrooms. I brought along copies of two
publications. One of them is “In Plain English:
Making Sense of the Federal Reserve.” The title is
pretty much self-explanatory—it’s a plain-talking
explanation of who we are and what we do.
The other publication, the Catalog of Public
Information Materials, has been recently updated.

What Is the Fed Doing in the Education Business?

It is available in both printed form and on the
Internet. Its home site is at the New York Fed,
but you can link to it from any Fed Bank’s web
site. The catalog is the granddaddy of all general
information sources on the Fed, most of which
are free. It’s intended mainly for educators, and
even tells you the intended audience for each item,
from elementary students and teachers through
college students and professors, plus the general
public or business professionals.
All of the Federal Reserve Banks have economic education programs. And although we offer
a lot of things in common, each Bank goes at it
differently. There’s a lot happening for educators
at the St. Louis Fed, and since that’s where I work,
that’s what I’ll focus on.
When I say we’ve got a lot going on for educators, I’m not exaggerating. Although we often
reach out directly to students, our primary focus
has been on secondary and elementary teachers.
We put a lot of effort here because economics at
the university level is better established and less
in need of our assistance. Dropping rocks into the
secondary education pond, on the other hand,
spreads ripples far and wide—it is a good way to
get the best value for the money we spend. Reach
one teacher with the right messages and materials,
and over time you reach hundreds of students,
and at an age when success really matters.
Don’t get me wrong; we work with college
educators also, and we’re always looking for ways
to add to those efforts. As you know, the St. Louis
Fed has a branch here in Little Rock and also in
Louisville and Memphis. Each year we hold halfday seminars in these cities for economics, business and finance professors. Fed economists give
presentations on timely topics and discuss them
with those attending. It’s a valuable experience
for us as well as for the professors. We also arrange
special tours of the Bank for groups of college
students and their instructors. A presentation by
an economist is often a part of those programs.
I myself get into the act. As part of my efforts
to speak on monetary policy and other topics, I’ve
been to Saint Louis University and have other
college appearances in the works. It always feels
good to me to come back home to a university.

Then there is the Fed Challenge—some of you
may be familiar with this competition for high
school students. I think the Fed Challenge is the
most exciting and innovative idea for teaching
economics I’ve seen over my entire teaching
career, and it is one of the St. Louis Fed’s—and
the Federal Reserve System’s—most successful
recent programs.
The Fed Challenge, in essence, is a mock
Federal Open Market Committee presentation.
Each student team in the competition presents a
15-minute analysis of the current economy. As
with a real FOMC meeting, each team ends its
meeting with a monetary policy decision. Following the presentation, “show-no-mercy” judges grill
the team with 10 minutes of questions. At last
year’s finals competition in Washington, held in
the Board room where I attend FOMC meetings
about every six weeks, I served as a judge along
with Governor Alice Rivlin, vice-chair of the
Board of Governors, and Governor Edward
Gramlich. There were six teams in the finals, one
from each of the six Federal Reserve Districts
sponsoring the Fed Challenge.
The Fed Challenge does several things for
high school students and, I might add, their
teachers. The competitive aspect is a wonderful
motivating device. It is like a typical debate competition, except that preparation takes most of
the school year. Students learn how to research a
complex topic—monetary policy—and how to
explain a position with clarity. They also learn
how to handle intense questioning. Combining
critical thinking skills with the need for succinct
presentation as part of a team is a learning experience of the first order.
Student teams get to the finals in Washington
after winning the competition in their own Fed
district. The Fed Challenge began in 1995; the
New York Fed saw the Challenge as a great device
to bring real-world economics into the classroom.
Since that time, other Reserve Banks have become
involved with the competition. Last year 208
teams took on the Fed Challenge, and I’m pretty
sure that more teams are preparing this year. In
the Eighth District this year, we have a competition running in both the St. Louis and Memphis


areas; the winners in these two areas will have a
run-off competition in St. Louis to determine the
team that will represent the District in the finals
in early May.
I’ve added an appendix to the text of this
speech, which will be available on the St. Louis
Fed’s web site in a few days, to provide further
information on our efforts that are of direct value
to educators.

Every Fed bank president, every Fed governor
and a significant number of other Fed employees,
spend quite a bit of time on the road giving
speeches. I view each of my speeches as half
education of the audience and half education of
me. I talk frequently about monetary policy and
Fed decision processes. I work hard on my
speeches because I believe that policy success
depends importantly on the markets and the
general public understanding what we are doing.
My subheading here is “The Fed on the Stump”
because I really do think of this aspect of my
responsibility as that of campaigning for a sound
monetary policy. In a democracy, the voters ultimately call the shots—I want the shots to be called
from a sound knowledge of economics and the
problems and uncertainties of making monetary
policy decisions.
I said that half of what I get out of a speech is
education of me. I am constantly searching for
information on how the economy is doing, from
the perspective of those in the audience. During
the Q&A period, during lunch or dinner before
or after a speech, during pick-up conversations
in the hallway, I continually seek out information
on the state of the economy and how people feel
about it. I also try to gather information on misperceptions and misunderstandings about economics and the policy process that need to be
addressed. These conversations help me to generate speech ideas for the future.
One thing we’ve been doing for some years
now in the Eighth District is an evening program
with bankers we call “District Dialogue.” We

travel around the District to all the major and notso-major cities and towns, usually making two
or three stops on any given road tour. Our format
is a late afternoon meeting with local bankers,
followed by a reception and dinner. In the meeting,
three of us will make presentations on the state
of the local economy, the national economic outlook and a particular topic of current interest,
such as the Y2K issue. The combination of three
short presentations and the Q&A takes 60 to 90
minutes or so. The next morning we’ll have a
breakfast meeting with local business and community leaders. Typically, I’ll talk for about 20
minutes and then we’ll have a conversation about
community concerns, questions for me, and my
questions for others.
Besides speeches like this one, and the
District Dialogue, we have a number of advisory
groups that meet in St. Louis. We have luncheons
for industry groups, such as homebuilders, health
care professionals and so forth. A feature of most
of these meetings is a “go around” where we ask
each person present to talk for a few minutes about
the state of the economy as he or she sees it.
Finally, I’ve been making a point of visiting
as many elected officials from states in the Eighth
District as I can. These include members of
Congress, mayors, state governors and others.
Matching calendars makes for a slow process in
setting up these meetings, but I think the effort is
very worthwhile in establishing good communications and an understanding of what the Fed does.

The press covers the Fed in considerable
detail. Indeed, I was somewhat surprised to find
national press representatives showing up at
many of my speeches. Local press are also often
Whenever representatives of the press attend,
I try to spend a considerable amount of time talking with them in small groups, or individually,
before or after a speech. I am also interviewed in
my office from time to time. I am more than willing to spend time with the press because what

What Is the Fed Doing in the Education Business?

they report can make a real difference to the
public’s understanding of the Fed.
I believe that taking time with the press is in
part an educational effort. Facts and Fed actions
do not speak for themselves; they need to be
explained and interpreted. I have a responsibility
to explain and interpret as best I can. That is an
educational function not just in the sense of disclosing my thinking but also in explaining the
economics behind my thinking. Good reporting
requires a thorough knowledge of the subject, and
I think I can assist reporters by sharing my knowledge. In the end, of course, each reporter has to
decide whether what I think I “know” is really
true. Still, everyone would agree that no one can
understand where I am coming from if I don’t
spend time talking about what I believe and why.
I might also note that economists use lots of professional jargon; many of the words have somewhat different meanings in everyday English and
that’s an invitation to mixed-up reporting. Mixedup reporting is not in anyone’s interest, and so I
work hard to be as clear as I can.
My experience with the press is almost uniformly positive. I say that not because I always
get good coverage—I don’t. But reporters do want
to report accurately and do want to say something
useful to their readers. If I give a speech and a
reporter writes a garbled story, I deserve part of
the blame for not being clear, or not spending
enough time with the reporter to be sure that there
are no misunderstandings. I don’t mind being
criticized for a position I’ve taken, but I do mind
having that position misstated. I want always to
sharpen the issues so that the general public has
before it a clear statement about what is at stake.

Fed presidents rarely testify in congressional
hearings, and I haven’t since I came to St. Louis
last March. However, governors, and especially
the chairman, do testify frequently. The Congress
has an important oversight responsibility for the
Fed, just as it does for executive branch depart-

ments. The Federal Reserve Act is the basic law
controlling the Fed; Congress can amend that act
at any time. The Federal Reserve System has a
responsibility to report to Congress about what
we are doing and why, and to be responsive to
questions from Congress.
I read most of the testimony presented by
Fed governors, and I believe that the Fed does a
fine job with its presentations. Moreover, I think
the Fed has done a much better job in recent years
than in the past. My knowledge of this area goes
far back, as I have learned a lot over the years
from reading Fed publications and testimony.
Fed congressional testimony is partly reporting
to Congress and the public and partly education.
The educational side of the endeavor should not
be underestimated. An incident from my own
experience testifying before the House Banking
Committee many years ago, when I was at Brown
University, illustrates my point. In the Q&A following my presentation, it became apparent
that the House member questioning me was
uninformed about how commercial bank reserve
requirements work. This member, who sat on the
Banking Committee, did not understand the
mechanics at the level of a freshman economics
text. No member of Congress can possibly be
informed about every aspect of congressional
responsibility, but each member and the member’s
staff should be well-informed about the business
of oversight committees on which the member
sits. In this incident many years ago, I did not
have an opportunity to bring the member up to
speed on reserve requirements, but I certainly
seize such opportunities whenever I can.

The Fed is in the economic education business, then, to affect change, to raise the bar, so to
speak, on the public’s knowledge about money,
banking and the Fed. We approach this task from
many different directions. We provide publications for students and teachers, elementary
through college, as well as for business and community groups. We host teacher conferences and


workshops and collaborate with local universities
to provide graduate courses for teachers. We work
closely with not-for-profit and governmental
organizations whose goal is to promote economic
education. We frequently hit the road, making
speeches and meeting with all sorts of groups to
exchange ideas.
Historically, in the United States and around
the world, central bankers have been a secretive
lot. They were often arrogant about their knowledge and believed that the general public could
not understand monetary policy. Policy decisions
were kept confidential. The public was told that
it simply had to trust central bankers, for they
were the experts and would do the job that had
to be done.
Central banking in the United States has
always been more open than in most countries,
reflecting the strong democratic traditions in this
country. But it is certainly true that the Fed needed
to become more open than it was in the past, as
indeed it has. I am convinced that Fed openness
is good for our democracy and good for our economy. It is an inescapable fact that Fed openness
will not be helpful if recipients of the information
do not understand enough economics to intelligently evaluate what we do.
So, economic education is not just a nice,
feel-good activity designed to induce people to
like us, but is instead an essential part of monetary policy. If we fail in our educational efforts,
our policy road will be a lot tougher. Indeed, I am
convinced that long-run economic performance
generally, and monetary policy success specifically, depends critically on economic literacy.
Think back to some of the survey results I cited
earlier in my remarks today—all of us have a big
job ahead of us.

In the Eighth Federal Reserve District, we
sponsor numerous other economic education
efforts aimed mainly at K-12 educators:
• We hold day-long teacher conferences in
St. Louis and our Branch cities in both the

spring and fall. Our economists give a series
of presentations on a timely topic—an
upcoming conference is on the “Asian
Contagion” —and local econ ed professors
conduct “application” breakout sessions,
complete with classroom materials, to help
teachers integrate the topic into their everyday activities.
• We provide assistance to national, state
and local associations like the National
Academy of Finance with finance career
academies in some 300 schools across the
country. That’s true also for the National
Council for Social Studies and state economic education councils and centers.
• We work with local school districts and
state education departments on economic
education programming and staff development. Next week, for example, one of our
St. Louis Fed economists is doing an “Ask
an Economist” video conference on the
euro, which will be broadcast from the
Cooperating School District’s studio to
five area schools.
• We collaborate with state treasurers’ Bank
at School programs to teach basic money
and banking concepts.
• We develop teaching materials—videos,
curriculum guides, booklets and more—
and they’re listed in the Catalog of Public
Information Materials I mentioned.
• We write and distribute newsletters for
teachers, featuring current information on
economic issues and how to integrate it
into a variety of subjects.
• We provide information on the Bank’s web
site with everything from money quizzes
to sophisticated databases.
• We provide tours, mainly for adult and
high school groups. Our guides are volunteer employees who enjoy talking about
Bank and Federal Reserve history, and the
Fed’s role in the economy and the payments