TREASURIES-Yields dip before Fed meeting statement

By Karen Brettell

NEW YORK, Jan 29 (Reuters) - U.S. Treasury yields fell before the Federal Reserve is expected to keep interest rates steady at the conclusion of its two-day meeting later on Wednesday, with investors focused on any clues when a rate cut is likely.

Stronger economic growth and uncertainty over the impact of policies including tariffs that are expected to be implemented by the Trump administration have led traders to pare expectations on how many more times the U.S. central bank will cut rates.

Fed funds futures traders see the next rate cut as likely in May, but not fully priced in until June, with 50 basis points of cuts in total expected by year end.

With Wednesday's meeting unlikely to offer many surprises, Fed Chair Jerome Powell may discuss topics including when the Fed will wind down its quantitative tightening program, said Thomas Simons, chief U.S. economist at Jefferies in New York.

In QT the Fed is letting bonds roll off its balance sheet without replacement.

Powell is also expected to face questions on how Trump's policies will impact the Fed's rate decisions, but he may be unlikely to offer any details when the outcome is highly speculative.

Meanwhile data on Thursday showed that the U.S. trade deficit in goods widened sharply in December, likely as businesses front-loaded imports in anticipation of broad tariffs from Trump's new administration.

That has raised speculation that gross domestic product data for the fourth quarter due on Thursday could be weaker than previously thought, said Simons, adding that "there's a lot of people marking down their expectations."

Still, Simons noted that large imports should also raise inventories, which may have an offsetting impact on the GDP data. Two-year Treasury yields were last down 0.6 basis points on the day at 4.199%. Benchmark 10-year yields fell 2.7 basis points to 4.522%. The yield curve between two-year and 10-year yields flattened by around two basis points to 32.4 basis points.