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The Fed may have lowered the Fed Funds Rate by 0.500%, but we won't know until mid-2008 if the move was good one or not. 

It's because the FOMC voting members walk a fine line between accelerating the economy, and grinding it to a halt. 

Predicting the future is actually a subtle part of the job description at the Fed because changes to the Federal Funds Rate create a complex chain reaction in the economy, beginning with businesses and their planning, spending and pricing decisions. 

Then, when those changes are fully-implemented, the changes trickle down to consumers who respond in kind with their own planning and spending decisions.

Because consumer spending makes up the bulk of our nation's economy, you can see why it takes nearly three seasons for Fed Funds Rate changes to permeate the economy in full.

If you don't think members of the Fed have tough jobs, you may be crazier than this guy.

The Fed's job of managing the Fed Funds Rate is like shooting free throws outside on a windy day.  The wind causes conditions to change routinely and makes the shot extra difficult. 

But to add a twist, the Fed has to wait nine months to figure out if the last shot it took actually went in.  If the Fed's shot last week "missed", we won't find out until next spring when all of the inflation data has come to light.

We can't wait that long, though.  The Fed will meet five more times before next spring -- before we know if the 0.500% cut was effective.  The Fed can't know if the last shot it took was off the mark before having to take its next shot. 

Ouch.

The impact of the Fed's rate cut won't be known until next spring -- too late to help out with the Fed meetings this fall and winter.  So, if you're wondering why the Fed tends to follow a string of rate hikes with a rate drop, and vice versa, this is it.  That final adjustment helps the Fed "pull-back" making over-adjusting in a changing economy.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.