"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."

William McChesney Martin, October 19, 1955

William McChesney MartinArthur BurnsG. William MillerPaul VolckerAlan GreenspanBen BernankeJanet YellenJerome Powell

In the article "Measuring Monetary Policy," Quarterly Journal of Economics, August 1998, Ben S. Bernanke and Ilian Mihov look for a simple measure of the tighteness of monetary policy in the United States at any given time. They find that the federal funds rate "appears to be (marginally) the best choice for the sample period as a whole" from 1965 to 1996. The caveat is that non-borrowed reserves do better in the bumpy early-Volcker period from 1979 to 1982, though that measure is "otherwise strongly rejected."

The graph below shows the monthly course of the federal funds rate from 1954 to the present, with labels identifying the time periods corresponding to each custodian of the proverbial punch bowl. The figure shows both the effective nominal rate tested by Bernanke and Mihov and a simple measure of the real rate obtained by subtracting inflation over the previous twelve months.