The U.S. Federal Reserve Board, via the Federal Open Market Committee led by Chairman Alan Greenspan, yesterday cut key interest rates by 50 basis points, or 0.5%, to 1.25%. The committee voted 12-0 in favor of the lower target rate in a closed-door meeting. After 11 reductions in 2001, this is the first reduction of 2002 and puts the rate at its lowest point since May 1959.

The Fed Funds Rate is the rate banks charge each other for overnight loans. It is considered the Fed's key economic tool in tuning the U.S. economy. The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to the economic outlook. The Committee's policy decisions are undertaken to foster the long-run objectives of price stability and sustainable economic growth.

In its statement, the committee said, "... incoming economic data have tended to confirm that greater uncertainty, in part attributable to heightened geopolitical risks, is currently inhibiting spending, production and employment ... today's additional monetary easing should prove helpful as the economy works its way through this current soft spot "

Manufacturing continues to be a problem, triggering much of the domestic economic concern. Chairman Alan Greenspan is known to watch manufacturing statistics carefully when weighing interest rate cuts.

Lately, the news from U.S. manufacturers has been uniformly bad. Employment fell 52,000 in August, 39,000 in September and 49,000 in October, according to this week's U.S. Department of Labor report.

In addition, the U.S. Department of Commerce recently released its September manufacturing activity report, showing factory orders fell by $318 billion, or 2.3%, in September after a 0.4% drop in August. September orders for durable goods, such as bearings and the products they go into, fell even faster -- by 4.9% in September.

The carefully watched purchasing manager's index, published by the Institute for Supply Management, fell to 48.5 in October from 49.5 in September. Any number under 50 indicates contraction in the sector and September's was the first since January 2002. The ISM called September, "a real turning point."