TREASURIES-Yields rise before expected hawkish Fed rate cut next week

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10-year yields hit 2 1/2 week high

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Fed expected to cut rates by 25 bps next week

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Fed likely to signal pause in rate cuts as inflation stays sticky

By Karen Brettell

Dec 13 (Reuters) - Benchmark 10-year U.S. Treasury yields rose to a two and a half week high on Friday before the Federal Reserve next week is expected to cut rats by an additional 25 basis points and signal that it will pause rate cuts as it grapples with inflation continuing to run above its 2% annual target.

Fed policymakers have stated that recent upticks in price pressures are part of the bumpy path to lower inflation and not a reversal of the disinflationary trend.

But analysts say that they are also likely to be wary of a renewed bout of higher price pressures with the Trump administration set to take office next year.

"They have to take into account that in an economy where inflation is showing itself at this point to be sticky, and you're very highly likely going to get further fiscal stimulus, deregulation, and some aspect of tariffs coming through, there's just no way you can validate why you keep cutting in that instance," said Tom Fitzpatrick, head of global market insights at R.J. O'Brien in New York.

Fed policymakers are also due to update their economic projections and interest rate outlook, known as the "dot plot," at the conclusion of the U.S. central bank's two-day meeting on Wednesday.

"I think they give a very strong guidance that they're going to pause in January and also you'll almost certainly see a revision of the dots in terms of the anticipation of the terminal rate," Fitzpatrick said.

The Personal Consumptions Expenditures Price Index, the Fed's preferred inflation measure, is due next Friday, after the Fed meeting.

The headline and core PCE data is expected to show that prices rose by 0.2% each in November, for an annual gain of 2.5% and 2.9%, respectively.

Benchmark 10-year note yields were last up 3.3 basis points on the day at 4.357% and reached 4.359%, the highest since Nov. 25.

Two-year note yields, which are highly sensitive to Fed interest rate policy, rose 2.9 basis points to 4.215%.

The yield curve between two-year and 10-year notes steepened by around one basis point to 14.4 basis points.

(Reporting By Karen Brettell, Editing by Nick Zieminski)