TREASURIES-US yields climb as Fed keeps rates steady, upgrades growth outlook

* Fed maintains rate cut forecast for 2026 despite growth upgrade

* Yield curve steepens slightly post-Fed statement

* Rate futures show reduced easing bets for 2026 (Adds new comment, details about Fed decision, projections, updates yields)

By Gertrude Chavez-Dreyfuss

NEW YORK, March 18 (Reuters) - U.S. Treasury yields rose on Wednesday, after the Federal Reserve kept interest rates unchanged, as widely expected, while maintaining its forecast for a single rate reduction in 2026.

The Fed also upgraded growth projections for this year and next, with Chair Jerome Powell noting in comments after the Fed decision that the U.S. economy has remained resilient through a whole bunch of challenges.

U.S. two-year yields, which reflect interest rate expectations, were last up 6.6 basis points (bps) at 3.737% . They were at 3.713% just before.

The benchmark 10-year yield advanced 4.7 bps to 4.249% , from 4.221% before the release of the Fed statement.

U.S. 30-year yields were up 2.4 bps at 4.876%.

"Implications of developments in the Middle East for the U.S. economy are uncertain," the Fed said in a policy statement that also noted ongoing stable unemployment. It kept the policy rate in the 3.50%-3.75% range.

The U.S.-Israeli war on Iran is ?now in its third week and the Strait of Hormuz, through which about 20% ?of global oil and liquefied natural gas ?flows, ?remains largely closed off.

New projections from U.S. central bank policymakers showed that the Fed's benchmark overnight interest rate would fall by just a quarter of a percentage point by the end of this year, with no hint of the timing of such a move. That view was unchanged from previous projections.

"The big takeaway is that the uncertainty is still so high in terms of what's going to happen with the war, what's going to happen with the job market, what's going to happen on inflation that it's really hard to get a strong view about where the Fed is heading," said Tony Rodriguez, head of fixed income strategy at Nuveen.

The new rate and economic forecasts showed the Fed, for the time being, largely looked through the oil shock, with policymakers still expecting to lower rates this year and anticipating inflation to be 2.2% by the end of 2027, near the central bank's 2% target.

Economic growth was raised slightly to 2.4% for 2026 versus 2.3% in December, and the projected unemployment rate was unchanged at 4.4%.

Inflation by the personal consumption expenditures price index, expected in December to ease to 2.4% at year end, is now seen at 2.7%, based on the median policymaker view. The Fed targets 2%.

Core PCE inflation, which strips out volatile oil and food prices, is now also seen hitting 2.7%, compared with 2.5% previously.

"The growth numbers are the more kind of surprising element increasing in 2026 by 1/10 and 2027 by three tenths," Rodriguez said.

"So that to me implies that you get energy prices kind of almost resetting, maybe not back to below $60 per barrel, but certainly back to $65, a level that really wouldn't impact growth very much and inflation will pass through relatively quickly."

Post-Fed, U.S. rate futures pared back easing bets for 2026, now showing just 20 bps of rate cuts this year, from 26 bps late on Tuesday, according to LSEG data. The next rate cut is not likely until December or January next year.

Following the Fed statement, the yield curve steepened a touch, with the spread between two-year and 10-year yields at 51.4 bps. It was at 50.8 bps just before.

Earlier in the session, the curve narrowed to 48.8 bps from 52 bps late on Tuesday. Wednesday's curve was the flattest since late November.

The curve showed a bear flattening pattern, with short-term interest rates rising faster than long-dated ones. This scenario likely reflects expectations that the Fed could continue the pause of its rate-cutting cycle as it looks to tamp down rising inflation. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama and Nia Williams)