A variable capacity furnace includes a variable capacity fuel valve configured to supply a fuel to a burner, where the variable capacity fuel valve is configured to be controlled to a target setting over a range of settings to modulate an amount or flow rate of the fuel supplied to the burner. The variable capacity furnace also includes a control assembly having processing circuitry and memory circuitry. The memory circuitry includes instructions stored thereon that, when executed by the processing circuitry, cause the processing circuitry to execute a control algorithm to determine, based on whether an indoor temperature is progressing toward a set point over time and based on a temperature differential between the set point and the indoor temperature, a target setting of the variable capacity fuel valve. The instructions also cause the processing circuitry to control the variable capacity fuel valve to the target setting.