In the New York Times, Jeanna Smialek writes about Biden’s nominee for Treasury secretary:
As the chair of the Federal Reserve from 2014 to 2018, Ms. Yellen also oversaw an extremely slow set of interest rate increases as she and her colleagues tested whether unemployment could fall further without leading to higher prices. Her patience drew criticism from inflation-wary economists at the time, but the policies laid the groundwork for a strong labor market and a record-long expansion that drove unemployment to its lowest rate in 50 years before the pandemic turned the world upside down.
It is true that the Fed faced a lot of pressure to hike interest rates faster than it did. But there was always evidence that it was moving too fast, not too slowly, and that evidence has only mounted since then. Both inflation and inflation expectations were below the Fed’s target during the period the Fed was first signaling rate hikes and then following through. Worries that unemployment was dangerously low, and would risk higher inflation, turned out to be misplaced: Unemployment subsequently fell further without causing any such harm.
The Fed’s premature rate-hike cycle caused a shortfall in nominal spending and thus an economic slowdown in 2015 and 2016. Unemployment would almost certainly have fallen faster, sooner, if they had not been undertaken. It’s even possible that in that scenario, a more robust economy would have left us with higher interest rates in 2018 and 2019. But the Fed jumped the gun.