The Federal Reserve saying of “taking away the punch bowl just when the party is getting good” means that the Federal Reserve seeks to avoid creating monetary bubbles in the economy. William McChesney Martin, Jr. (1906-1998) was chairman of the Federal Reserve from 1951-1970; he used the “punch bowl” saying in 1955 and upon his retirement in 1970.
 
A 1955 citation (below) from the Federal Reserve Bank of Cleveland states “as one writer put it,” so it’s possible that Martin picked up the saying from a financial writer. Martin was a teetotaler; he had once considered becoming a Presbyterian minister and was described by one journalist as “the happy puritan.”
 
[Research on this quotation was pioneered by Garson O’Toole, The Quote Investigator.]
   
 
Wikipedia: William McChesney Martin
William McChesney Martin, Jr. (December 17, 1906, St. Louis, Missouri – July 28, 1998, Washington, D.C.) was the ninth and longest-serving Chairman of the United States Federal Reserve, serving from April 2, 1951 to January 31, 1970 under five Presidents. Martin, who once considered a career as a Presbyterian minister, was once described by a Washington journalist as “the happy puritan.”
 
Early life
William McChesney Martin, Jr. was born to William McChesney Martin and Rebecca Woods. Martin’s connection to the Federal Reserve was forged through his family heritage. In 1913, Martin’s father was summoned by President Woodrow Wilson and Senator Carter Glass to help design the Federal Reserve Act that would establish the Federal Reserve System on December 23 that same year. His father later served as governor and then president of the Federal Reserve Bank of St. Louis.
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Chairman of the Federal Reserve
With Robert Rouse, Woodlief Thomas, and Winfield Riefler of the Fed, Martin negotiated the 1951 Accord. The Federal Open Market Committee (FOMC) and Secretary Snyder accepted the Accord and its compromises, and it was approved by both institutions. The Chairman of the Board of Governors at the time of ratification was Thomas B. McCabe, who would officially resign from his position just six days after the statement of the Accord was released. The Truman Administration saw the resignation of McCabe as the perfect opportunity to recapture the Fed almost immediately after it had supposedly broken away. Truman selected Martin to be the next Chairman of the Board of Governors, and the Senate approved his appointment on March 21, 1951.
 
Contrary to Truman’s expectations, however, Martin guarded the Fed’s independence, not just through Truman’s administration but also through the four administrations that would follow. To the present day, his term as Chairman is the longest term the Board of Governors has seen. Over nearly two decades, Martin would achieve global recognition as a central banker. He was able to pursue independent monetary policies while still paying heed to the desires of various administrations. Although the objectives of Martin’s monetary policy were low inflation and economic stability, he rejected the idea that the Fed could pursue its policies through the targeting of a single indicator and instead made policy decisions by examining a wide array of economic information. As Chairman, he institutionalized this approach within the proceedings of the FOMC, gathering the opinions of all governors and presidents within the System before making decisions. As a result, his decisions were often supported by unanimous votes on the FOMC. His most famous quote about his central banking philosophy was that the job of the Federal Reserve is “to take away the punch bowl just as the party gets going,” referring to the need to raise interest rates when the economy is at its most active.
     
25 October 1955, Evening World-Herald (Omaha, NE), pg. 32, col. 1:
Talk by FRB Chief Explicit
Martin Gives Reasons for Credit Curbs
By Lou Schneider
The top brass of the business and financial world agree that the most important speech at last week’s Investment Bankers Association annual dinner was made by Bill Martin, chairman of the Federal Reserve System.
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Mr. Martin owned up that the Federal Reserve, “is in the position of the chaperone who ordered the punch bowl removed just when the party was really warming up.” But it was done because there are economic danger signals in sight. “If we fail to apply the brakes sufficiently, and in time, we shall go over the cliff.”
     
Google Books
Economic Review
Federal Reserve Bank of Cleveland
1955
Pg. 48:
Those who have the task of making such policy don’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.
     
Google Books
The Economist
Volume 177
1955
Pg. 658:
This mood has revealed itself again this year, at least in some areas of the economy; and the still-unresolved question is whether monetary policy, by “ordering the punch bowl removed just when the party was really warming up,” can convert headlines into sound growth (the quotation is from Mr. W. M. Martin, Junr, chairman of the board of governors of the Federal Reserve).
     
18 February 1966, San Diego (CA) Union, pg. B3, col. 1:
A FED ECONOMIST’S VIEW:
Heated Viet Nam
Kills Soft Money
By CARL W. RITTER
The San Diego Union’s Financial Editor
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The “Fed” doesn’t intend to take away the punch bowl just when the party’s getting good, Burke said, “but we will do ample goal tending around it.” The reason, of course, is to stave off any strong upsurge of inflation.
(Dr. William Burke, senior economist of San Francisco’s Federal Reserve Bank—ed.)
 
Google Books
The Magazine of Wall Street
Volume 119
1966
Pg. 51:
TAKING AWAY THE PUNCH BOWL….Chairman Martin of the Federal Reserve Board said some time ago that when the party is in full swing nobody wants to take away the punch bowl.
     
Time magazine 
Monday, Feb. 02, 1970
Business: The Martin Era
DURING his unprecedented 19 years as chairman of the Federal Reserve Board, William McChesney Martin left a formidable imprint on the life of the U.S. Now the chief guardian of the nation’s money and regulator of its credit has served as long as the law allows. This week, at 63, the world’s most powerful banker will retire.
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A stubborn, honest and puritanically forthright man, Martin liked to explain that the Reserve Board’s unpopular actions arose out of its necessary role of “leaning against the wind.” He said: “I’m the fellow who takes away the punch bowl just when the party is getting good.” (Martin is a teetotaler.) Above all, he defended the integrity of the U.S. dollar at home and abroad, though he and the board lacked the power to do the job effectively alone.
 
ForexLive
Fed’s Williams: Fed knows how to take away the punch bowl
By Jamie Coleman || February 8, 2012 at 16:55 GMT
When the time comes to raise rates the Fed knows how to take away the punch bowl.
 
MarketWatch
Matthew Lynn’s London Eye
Feb. 29, 2012, 8:28 a.m. EST
What central banks provide, oil markets take away
Commentary: Quantitative easing merely flowing into oil markets
By Matthew Lynn
LONDON (MarketWatch) — When William McChesney Martin was chairman of the Federal Reserve all through the 1950s and 1960s, he famously described the job as “taking away the punch bowl while the party was still going.” Central bankers don’t think like that anymore — they are more likely to be cheerfully pouring more vodka into the mix, and asking if anyone knows the name of a good dealer in tobacco-based products.