TREASURIES-US yields climb as Fed stays on hold; Powell strikes hawkish tone

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Waller, Miran dissent on Fed decision in favor rate cut

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Fed's Powell says rate hike not part of baseline outlook

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US 2/10 yield curve flattens a bit as inflation worries ease

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US rate futures expect less than two rates in 2026

(Adds new comment, Fed's Powell's remarks, bullets; updates yields)

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 28 (Reuters) - U.S. Treasury yields rose on Wednesday after the Federal Reserve left interest rates steady, as widely expected, and noted that inflation remained elevated and the ?labor market continued to stabilize.

The Fed held rates unchanged at the 3.50%-3.75% range following a two-day meeting. In its statement, the Federal Open Market Committee said "job gains have remained low," ?and further removed language from its prior remarks saying downside risks to employment had risen.

This suggested that Fed policymakers have become less worried ?about a deterioration in the labor market.

Chair Jerome Powell further struck a hawkish tone in his press ?conference following the Fed statement, ?though he emphasized that a rate hike is not part of the baseline outlook for either Federal Open Market Committee voters or non-voters.

He reiterated the Fed's assessment on inflation ?and the labor market, noting that upside risks to inflation and downside risks ?to employment have both eased.

"An absolute snoozefest. Overall, Fed officials believe they are close to neutral and well positioned to respond to whatever happens next," wrote Dario Perkins, managing director, global macro, at TS Lombard in emailed comments.

"In ?fact, the only noteworthy point came from a slight upgrading of ?how the FOMC ?perceives the labor market. The jobs data have stabilized and that has made officials less anxious about 'stalling'."

Perkins described the Fed statement as "slightly hawkish".

Both Governor Christopher Waller, a contender to replace Fed Chair Jerome Powell when his term as central bank chief ?ends in May, and Governor Stephen Miran, on leave from his job as an economic adviser at the White House, dissented in favor of a quarter-percentage-point rate cut.

Following the Fed decision, the benchmark 10-year yield gained 2.8 basis points to 4.249%, while the U.S. 30-year yield rose 2.6 bps to 4.860%. Gains were much higher immediately after the Fed statement.

On the front end of the curve, U.S. two-year yields, which reflect interest rate expectations, were up 1.6 bps at 3.585% .

Post-Fed, U.S. rate futures priced in about 46 bps of easing, or fewer ?than two 25-basis-point ?rate cuts, for 2026. That was down from about 53 bps two weeks ago.

NO RATE CUTS IN 2026?

"With the market strong and the economy strengthening, I think there may be no cuts in 2026," said Chris Grisanti, chief market strategist, ?at Mai Capital Management in New York.

With the FOMC out of the way, Matthias Scheiber, head of the multi-asset team at Allspring Global Investments in London, said the big focus will be on the announcement of the new Fed chair, noting that the race is "wide open" though a general expectation is that someone more dovish will succeed Powell.

In other parts of the bond market, the yield curve flattened a little bit following Powell's comments on diminishing upside risks to inflation. The spread between two-year and 10-year yields narrowed to 65.2 bps from 66.6 bps late Tuesday.

The curve earlier on Wednesday steepened to ?67.8 bps on worries about the inflation outlook with the latest downtrend in the dollar, a move that was seemingly endorsed by President Donald Trump.

The curve had exhibited a classic bear-steepening pattern, with long-term yields climbing more rapidly than short-term rates as investors priced in a heightened risk of reaccelerating inflation.

But U.S. Treasury Secretary Scott Bessent poured cold water on ?the weak dollar talk, affirming the U.S.'s strong-dollar policy. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Laura Matthews and Chuck Mikolajczak; Editing by Diane Craft)