The Taylor Rule and the Federal Funds Rate The purple line shows the federal funds rate predicted by the San Francisco Fed’s version of the Taylor rule, which relates the interest rate to the inflation rate and the unemployment rate. The green line shows the actual federal funds rate. The actual rate tracked the predicted rate quite closely through the end of 2008. After that, however, the Taylor rule called for negative interest rates, which aren’t possible.Sources: Bureau of Labor Statistics; Congressional Budget Office; Federal Reserve Bank of St. Louis; Glenn D. Rudebusch, “The Fed’s Monetary Policy Response to the Current Crisis,” FRBSF Economic Letter #2009-17 (May 22, 2009).