How a Former Fed President Would Reduce the Balance Sheet

The transcript discusses the Federal Reserve's approach to managing its balance sheet and the challenges it faces in communicating policy changes. It highlights the importance of gradual steps and the lessons learned from past tapering. The debate on inflation rates and the need for policy tightening is explored, with a focus on the Phillips Curve and its impact on forecasting. The Fed's reliance on the unemployment rate as a measure of inflation is questioned, given the dynamic nature of economic linkages.

Why does the Fed continue to underestimate labor market strength while overestimating inflation?

What is the significance of the Phillips Curve in the Fed's assessment of inflation and unemployment?