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In this paper, we propose a novel active queue management algorithm PFED, which is based on network traffic prediction. The main properties of PFED are: (1) stabilizing queue length at a desirable level with consideration of future traffic, and using a MMSE (minimum mean square error) predictor to predict future network traffic; (2) imposing effective punishment upon misbehaving flow with a full stateless method; (3) maintaining queue arrival rate bounded by queue service rate through more reasonable calculation of packet drop probability. To verify the performance of PFED, PFED is implemented in NS2 and is compared with RED and CHOKe with respect to different performance metrics. Simulation results show that PFED outperforms RED and CHOKe in stabling instantaneous queue length and in fairness. It is also shown that PFED enables the link capacity to be fully utilized by stabilizing the queue length at a desirable level, while not incurring excessive packet loss ratio.