In the 1950s, William McChesney Martin put bankers on notice with a famous comment that likened inflation to drunkenness. Whether people on Wall Street like it or not, he said, the Fed's job is to take away the punch bowl just as the party is "really warming up."
Mr. Martin (who went on to become the Fed's longest-serving chairman) was at the time boosting interest rates to prevent an inflationary overheating in the economy. The Fed held inflation below 4 percent, but the economy went through a wrenching eight-month recession starting in 1957.
The statement apparently didn't move markets at the time, but it is perhaps the best-known comment by a Fed chairman. The phrase is cited frequently as an apt description of the Fed's difficult mandate: to make sure there's enough monetary fuel for the economy to grow at full potential, but not so much that inflation gets out of hand.
The statement itself is shrouded in some mystery, according to University of Washington economist Yoram Bauman, who blogged recently that it appears to date from an Oct. 19, 1955 speech to investment bankers. Martin uttered the "punch bowl" words, but a little differently than is often quoted.
Here's what he said: "The Federal Reserve, as one writer put it, after the recent increase in the discount rate, is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up."
The economy was humming along fine as he spoke, and US stock prices rose in the session after the speech.