πŸ“ Taylor Rule & Balanced Approach Rule

Historical policy rule benchmarks vs. actual fed funds Β· Live calculator Β· Source: FRED
Updated: May 31, 2026

Historical: Actual FFR vs. Policy Rules (1990–present)

Actual FFR Taylor Rule (1993) Balanced Approach Rule

Live Calculator β€” adjust inputs to reprice both rules

Taylor Rule (1993)
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Balanced Approach Rule
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Divergence (Balanced βˆ’ Taylor)
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When U > U*, the Balanced Approach prescribes a lower rate than Taylor. Divergence = 0 when unemployment is exactly at NAIRU.

Sensitivity β€” Prescribed rate vs. unemployment (other inputs held fixed)

Taylor Rule (1993): R = r* + Ο€ + 0.5Β·(Ο€ βˆ’ Ο€*) βˆ’ 1.0Β·(U βˆ’ U*)

Balanced Approach Rule: R = r* + Ο€ + 0.5Β·(Ο€ βˆ’ Ο€*) βˆ’ 2.0Β·(U βˆ’ U*)

Both rules written using the unemployment gap (via Okun's Law), where a 1% rise in unemployment β‰ˆ 2% drop in output. The Balanced Approach doubles the unemployment coefficient from βˆ’1.0 to βˆ’2.0, prescribing 200 bps of cuts per 1% of excess unemployment vs. 100 bps under Taylor. Championed by former Fed Chair Janet Yellen to reflect a more symmetric response to the dual mandate.

Sources: FRED β€” FEDFUNDS, PCEPILFE (Core PCE YoY), UNRATE, NROU (CBO NAIRU). r* held constant at 0.5% (standard Fed Research assumption).