We obtained data on the inflation rates from 1955-2010 then applied the Taylor Rule which is a formula we learned in class that "predicts" the target fed fund rates as iFedrFed ? where rFed2% 0.5(? - 2%) (?: inflation rate). Note that extended versions have unemployment rate or GDP growth rate and in our model we do not include this.

We then obtained the actual federal funds rate from the website below:

We then made a graph showing the time series of the actual and predicted(targeted) federal funds rate.

Using this data we can now answer the question "Is the current federal funds rate too high or too low?"

If the target federal funds rate is lower than the actual federal funds rate this makes it easier for commercial banks to borrow...