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BENDING IT LIKE BERNANKE SHOWS ERROR OF FED WAYS

"So you want to be in charge of monetary policy?" asks the education section of the Federal Reserve's Web site. "... See how it works by taking charge of a simulated economy."

Yes, please! What a hoot! "Your goal is to get reappointed," says the site. Wow, so much for public service. I always suspected it was all about hanging on to the job rather than safeguarding the prosperity of 300-million Americans.

I wonder how the Fed's model of the U.S. economy would react to the decisions its chairman, Ben Bernanke, has taken. So I climb into the helicopter, and prepare to bend it like Bernanke.

The game begins with the Fed rate at 4.5 percent, where policy stood in December before the central bank slashed borrowing costs. "Fed Chair Appointed," say the game's imaginary news headlines. "Inflation Rising; Fed Expected to Raise Rates." Unemployment is 4.75 percent, while inflation is 2.14 percent.

My first move is a cut to 4.25 percent, as the Fed did in December. "Rising Inflation Fears," says the newspaper. "Experts Say Interest Rates Must Go Higher." Ha! What do they know? I'm in charge here! Unemployment declines to 4.69 percent, inflation accelerates to 2.26 percent.

The Web site Fed won't let me change course between meetings, so I have to wait to replicate the Jan. 22 emergency measure driving the target rate down to 3.5 percent. My second term in office is looking like a shoe-in with the jobless rate dropping to 4.57 percent, though consumer prices are now rising at 2.4 percent a year.

My third move mirrors the Jan. 30 half-point cut to push the Fed rate down to 3 percent. "Inflationary Pressure," the headlines warn. "Employment Strong but Price Index Rising." The jobless rate dips to 4.29 percent, inflation speeds to 2.61 percent.

At this point, with real and imaginary key interest rates the same, I'm doing a bit better than Bernanke. He is wrestling with a 4.1 percent inflation rate and a 4.9 percent jobless figure. From here I'm relying on what traders and economists expect the Fed to do.

Prices in the futures market suggest there's a 98 percent chance of a half-point reduction on March 18. So that's what I do.

"Extra!" hollers the headline. "Dollar Down Overseas, Cost of Imports to U.S. Rising Sharply." Unemployment swings down to 3.26 percent, while consumer prices bust higher at 3.51 percent.

Still, the futures market tells me to cut again, predicting a quarter-point reduction April 30. "Extra!" screams the newspaper. "Dollar Continues to Fall. Fed Expected to Raise Rates as Prices Rise." With the Fed funds rate now 2.25 percent, I've goosed the economy so hard that joblessness is down to 2.28 percent - the lowest since at least 1948. Consumer prices, though, are rising at a pace of 4.72 percent.

The futures market suggests the Fed might pause at about 2 percent. Not so David Rosenberg, chief economist for North America at Merrill Lynch & Co., who said last month the Fed will need to lower borrowing costs to 1 percent as recession takes hold. I attack the Fed's Web site with five clicks on the minus button.

Unemployment drops to 1.5 percent - and stays there as the Fed's model gets stuck at what it clearly views as the natural jobless rate. Consecutive cuts are greeted with the same headline, "Fed Cuts Interest Rates, Unexpected Move May Worsen Inflation."

By the time I have driven the Fed funds rate down to the 1 percent suggested by Merrill's Rosenberg, inflation is at an eye-popping, 1970s-oil-crisis level of 11.58 percent - and I'm pretty sure I'm no longer in charge, having been dragged off in a white jacket that only buttons at the back.

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