Because participants on average anticipate a modest undershooting of the unemployment rate below its estimated longer-run level, the balanced-approach rule calls for a slightly faster pace of tightening over the next several years than the Taylor rule. Figure 8 also reports results for a “change” rule, shown as the green long-dashed line.
As its name implies, this rule does not prescribe a particular level of the federal funds rate at a given time but rather how the existing rate should change from quarter to quarter based on two gaps--the difference between inflation and its desired level as well as the difference between the unemployment rate and its longer-run normal level.