Powell: Inflation Today Is A Supply/Demand Issue

First Q for Powell at the NABE event: What does a neutral balance sheet look like?

• Powell describes in terms of liabilities (eg demand for cash, reserves). Says that at coming meeting the Fed will begin to reduce the balance sheet, a process that will occur over roughly three years.
• Follow up Q gets Powell onto how inflation is mainly a supply/demand issue, not about money supply. Says decades ago quantity of money eyed, but money velocity not as important today. "What seems to be causing today's inflation" is that it moved from services to a much more constrained goods sector; the demand curve became vertical for some goods (eg cars).
• Powell on labor market pressures: The current labor market has an imbalance between supply and demand; it's much hotter than the labor market we had before the pandemic. We have to take that into account when setting policy. In principle, less accommodative monetary can reduce demand for labor, while we wait for participation to pick up. Ultimately if you want a strong labor market you have to have price stability.