Taylor Rule (Styled by Mongoose) + Macro Action Plan

Methodology:
This indicator implements the standard Taylor Rule to estimate a theoretically neutral federal funds rate (FFR) based on economic conditions.

Taylor Rule Formula:

FFR = r* + π + 0.5(π - π*) + 0.5 × Output Gap

π = current inflation rate

π* = inflation target

r* = natural real interest rate

Output Gap = 100 × (u* - u) / u*

u = actual unemployment rate

u* = natural unemployment rate

Visuals:

Teal Line = Taylor Rule Rate

Orange Line = Manual Fed Funds Rate (custom input)

Color Zone Highlight

Red = policy rate far below Taylor estimate (gap > +1.0)

Green = policy rate far above Taylor estimate (gap < -1.0)

Reference Lines:

0% (Zero Bound)

2% (Neutral Rate)

5% (Hawkish Zone)

How to Use:

A Taylor Rate above the actual Fed Funds Rate may imply accommodative conditions.

A Taylor Rate below the actual Fed Funds Rate may imply restrictive or tight policy.

The gap between the Taylor estimate and actual rate helps assess potential macro pressure on markets, yields, and risk assets.

Trader Application:

Helps forecast shifts in Fed stance and macro policy inflection points

Use as a regime filter for positioning in equities, bonds, FX, and commodities

Can support long/short macro strategies based on rate gap and inflation dynamics

Inputs (Editable):

Inflation rate

Inflation target

Neutral real rate (r*)

Actual and natural unemployment rate

Manual FFR value