The latter can be approximated using Okun’s law, Yt = –2 (Ut – U*) , where U is the unemployment rate and U* is the natural rate of unemployment.
If RR* is assumed to equal 2 percent (roughly the average historical value of the real federal funds rate) and U* is assumed to equal 5-1/2 percent, then the Taylor rule would call for the nominal funds rate to be set a bit below 3 percent currently, given that core PCE inflation is now running close to 1–1/4 percent and the unemployment rate is 5.5 percent.