TREASURIES-US yields drop after Fed cuts interest rates

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Fed cuts rates by 25 basis points, cites labor market easing

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US rate futures price in another 25-bp cut next month

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Analyst questions need to cut if risks are in balance

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Fed's Powell says no plan to raise interest rates

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Fed's Powell says election has no near-term policy impact

(Adds new comment, U.S. data, more comments from Fed's Powell, graphic, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 7 (Reuters) - U.S. Treasury yields dropped across the board on Thursday in volatile trading, after the Federal Reserve cut interest rates by 25 basis points, as widely expected, amid a cooling labor market, while noting that economic growth remained solid.

The benchmark 10-year yield initially trimmed losses after the Fed decision before extending its fall. It was last down 9.1 bps at 4.335%, on track for its largest one-day fall in three months.

The U.S. two-year yield, which reflects interest rate expectations, slid 6.9 bps at 4.218%, its biggest daily decline in two months.

"Economic activity has continued to expand at a solid pace," the central bank's rate-setting Federal Open Market Committee said at the end of a two-day policy meeting. The FOMC lowered the benchmark overnight interest rate to the 4.50%-4.75% range. The decision was unanimous.

Fed Chair Jerome Powell said, in a press briefing after the rate decision, that the U.S. central bank is going to "move carefully" as the easing cycle goes on to increase the chances that it gets it right. He also noted that the Fed has no plan to raise interest rates.

"My main question is if inflation is still elevated and the committee risks are roughly in balance, what is the point of continuing to cut?" wrote Byron Anderson, head of fixed income at Laffer Tengler Investments, in emailed comments.

"The Fed gained control of the recession narrative with its supersized cut at the last meeting. If you believe the economy is on good footing, the risks to inflation are increasing with every rate cut they do."

In other maturities, U.S. 30-year bond yields slid 5.8 bps to 4.542%, after climbing to a nearly six-month peak hit on Wednesday.

The U.S. yield curve flattened on Thursday, as yields came off their highs. The gap between two-year and 10-year yields was at 13.5 bps, falling after hitting on Wednesday its steepest level since late September of 19.5 bps.

Yield curves tend to steepen when the Fed is in the midst of an easing cycle because yields on the front end are anchored with the rate cuts. Those on the long end, however, tend to rise with some expectation that the rate reductions could eventually accelerate inflation down the road.

DATA DEPENDENCE

"A lot of commentary has been written about how being data dependent this cycle has led to being late," said Ellen Hazen, chief market strategist at F.L. Putnam Investment Management in Wellesley, Massachusetts.

"And at some point they are going to have to address that and decide if they still want to be data dependent and therefore run the risk of being late."

Following the Fed decision, the fed funds futures market has priced another 25-bp rate cut next month, with a 72% probability, according to LSEG calculations. Rate futures are also implying another 67 bps in reductions in 2025.

Powell also said in the near term, the election outcome this week has no impact on its policy.

Market players were worried that the economic agenda under Republican former President Donald Trump, who won a decisive victory over Vice President Kamala Harris, will reaccelerate inflation through tariffs. It will likely also add to the country's huge fiscal deficits that would entail increased issuance of Treasuries to help address the budget shortfall. Thursday's data, meanwhile, continued to show an economy that is not doing too badly. Initial claims for state unemployment benefits increased 3,000 to a seasonally adjusted 221,000 for the week ended Nov. 2, data showed.

In the meantime, U.S. labor costs - the price of labor per single unit of output - rose at a 1.9% rate in the July-September quarter after an upwardly revised 2.4% pace of expansion in the second quarter. That has partly dimmed the outlook for inflation and interest rates.

Treasury yields trimmed losses after the economic reports.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Chuck Mikolajczak; Editing by Andrea Ricci and Lisa Shumaker)