When you open the pot after 8 hours of incubation, the yogurt will appear very firm and the whey—a pale yellow liquid—will be separate from the milk solids. Just give the mixture a stir before you pour into the strainer.
To sterilize the Instant Pot, pour the water into the pot. Secure the lid on the pot. Close the pressure-release valve. Select steamand adjust cooking time to 5 minutes. When cooking time is complete, use a quick-release to depressurize. Press CANCEL. Remove the lid and pour water out of the pot. Dry and cool pot.
Pour the milk into the completely cooled pot. Stir in powdered milk if using. Secure the lid on the pot. Open the pressure-release valve. Select YOGURT and adjust until display reads “Boil.”
When boil and cool-down cycles are complete (about 1 hour), check the temperature with an instant-read thermometer. If it is not 185°F, select SAUTE and adjust to NORMAL to warm it to 185°F. Press CANCEL. Remove inner pot and place on a cooling rack to cool. (Or speed the cooling process by setting the inner pot into a sink full of cool water.) Cool milk to 110°F, whisking occasionally. Return inner pot to Instant Pot.
Whisk in yogurt and, if desired, vanilla and sugar. Secure the lid on the pot. Open the pressure-release valve. Select YOGURT and adjust incubation time to 8 hours, making sure display says NORMAL. (If a more tart flavor is desired, you can adjust the time up to 10 hours.)
When incubation time is complete, cool yogurt in the pot in the refrigerator, covered and undisturbed, for at least 6 hours or overnight.
In a large bowl place a colander lined with a double layer of cheesecloth. Transfer yogurt to the cheesecloth-lined strainer and strain in the refrigerator for about 1 to 2 hours for regular yogurt or at least 8 hours or overnight for Greek-style yogurt. Store in tightly sealed containers in the refrigerator.
*NOTE: Milk that is higher in fat will produce thicker, creamier yogurt than 1% or skim milk—but you can also thicken yogurt by straining it for a longer period of time. The powdered milk is optional, but it, too, helps thicken the yogurt—as well as adding protein.