The Federal Reserve this week lowered interest rates for the 11th time this year, bringing the rate for overnight funds - commonly known as Fed funds - down 25 basis points to 1.75 percent.

The Federal Reserve, which is the independent central bank established by the US congress early last century, has aggresively cut rates from the beginning of the year and the rate is now at its lowest level in 40 years.

Joel Schaefer, chartered financial analyst and secretary of the Bermuda Society of Financial Analysts (BSFA) attributed the drop to the Fed's desire to "jump start" the US economy, which has been in recession since March.

In a press statement on Tuesday, the Federal Reserve remained cautious on an economy bounce-back, calling signs of a rebound, were "preliminary and tentative".

When asked if further rate cuts could follow, Mr. Schaefer said it was unlikely there would be further cuts this year, but rates could go down further early next year. The Fed meets again on January 30, 2002.

"There is still the likelihood of further cuts. The Fed will keep cutting rates until it has the desired effect," Mr. Schaefer said.

Mr. Schaefer said the Fed would be monitoring economic indicators, looking for improvement in such areas as employment numbers, production numbers, earnings and stock market performance.

Of the impact on Bermuda, Mr. Schaefer said the US economy downturn would affect Bermuda as Americans would have less discretionary income for travel and spending.

And from a purely monetary perspective, Mr. Schaefer said lower US rates would eventually follow through to Bermuda.

And the Bank of NT Butterfield did follow the Fed's lead this week. Chief financial officer Richard Ferrrett said on Tuesday that the bank would cut its US Dollar prime rate 25 basis points to 4.75 percent effective yesterday.

He added that all other rates remain under review.

There were no announced cuts from the Bank of Bermuda, or Capital G Bank, although both indicated they were closely monitoring the Fed's rate cuts.

Bank of Bermuda's head of retail clients Danny Fox said: "We have strong ties to the US economy - apart from being close neighbours, we also have many business ties.

"And of course, the Bermuda dollar is tied to the US dollar.

"This means a change in the overnight target interest rate by the Federal Reserve is significant to us, but is not the only consideration.

"At the bank we look at the global economy as well as the factors unique to us here in Bermuda, alongside what is happening in the US when making a decision," he said.