Friday, July 27, 2018

"Take the punch bowl away."

In monetary policy jargon, "taking away the punch bowl" refers to a central bank action to reduce the stimulus that it has been giving the economy. 

The "punch bowl" metaphor seems to trace back to a speech given on October 19, 1955, by William McChesney Martin, who served as Chairman of the Federal Reserve from 1951 through 1970, to the  New York Group of the Investment Bankers Association of America. Here's what Martin said to the financiers of his own time, who presumably weren't that eager to see the Fed reduce its stimulus, either:

"If we fail to apply the brakes sufficiently and in time, of course, we shall go over the cliff. If businessmen, bankers, your contemporaries in the business and financial world, stay on the sidelines, concerned only with making profits, letting the Government bear all of the responsibility and the burden of guidance of the economy, we shall surely fail. ... In the field of monetary and credit policy, precautionary action to prevent inflationary excesses is bound to have some onerous effects--if it did not it would be ineffective and futile. Those who have the task of making such policy donl t expect you to applaud. 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."

(via Timothy Taylor)