TREASURIES-Treasury yields rise after Warsh's debut meeting brings hawkish shift

(Updates with fresh prices, Fed statement, Warsh speaking)

* Strong data, Fed hold send rates higher

* Analysts see hawkish shift in Fed statement

* Warsh comments will be closely scrutinized

By Colin Barr

NEW YORK, June 17 (Reuters) - Short-term Treasury yields rose to the highest in 16 months on Wednesday after investors took a string of strong economic data, a U.S. Federal Reserve decision to hold interest rates steady and the debut of new central bank Chair Kevin Warsh to demonstrate a likely shift toward tighter policy.

The 10-year Treasury yield was up 3 basis points at 4.461% and the 2-year yield, which is most sensitive to the market's expectations for Fed rate action, was up 16 basis points to 4.207%, its highest since February 2025. U.S. rate markets were putting 72% odds on a Fed rate hike by October.

"While the Fed officially made no changes to their rate target (on Wednesday), there has clearly been a big shift," said Tom Graff, chief investment officer at Facet in Phoenix, Maryland. "The most notable was the dot plot, where half of FOMC (Federal Open Market Committee) members penciled in at least one hike for the remainder of 2026, while only one member favored a cut. That's a marked change from the last dot plot where the median forecast was for cuts." Policymakers expect a hike in borrowing costs later this year amid growing concerns about inflation lodged above the central bank's 2% target. New quarterly projections showed nine Fed officials now anticipate a hike in rates by the end of 2026, and an updated policy statement removed language that had been used to flag the likelihood of further reductions in borrowing costs this year.

The shortened document, a return to a format similar to that used by former Fed Chairman Alan Greenspan, was approved by a unanimous 12-0 vote by the FOMC. Investors said the shift toward hawkishness at the FOMC was unmistakable. With data showing strong U.S. hiring, a relatively low 4.3% unemployment rate and inflation well ?above the Fed's 2% target, many analysts had anticipated the central bank would hold rates steady while removing language from its policy statement about "additional adjustments" to its benchmark interest rate.

The reference has been used to indicate likely future decreases in borrowing costs. Investors anticipate the central bank's policy-setting FOMC will deliver a quarter-percentage-point rate increase in December.

"The committee turned sharply hawkish, with the median participant yanking inflation projections much higher - suggesting that officials don't expect this weekend's U.S.-Iran deal to result in a serious easing in price pressures - and penciling in at least one hike this year, marking a stark contrast with the cut previously expected," said Karl Schamotta, chief market strategist at Corpay in Toronto.

STRONG DATA, HIGH GAS PRICES

Retail sales jumped 0.9% last month after a downwardly revised 0.4% gain in April, the Commerce Department's Census Bureau said.

Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, rising 0.5% after a previously reported 0.5% increase in April.

"Overall, the data offers a reassuring indication of a resilient consumer despite the continued erosion of real purchasing power," said Vail Hartman, a rates associate at BMO Capital Markets. "Despite the surge in prices at the pump, concerns of a slowdown in consumer spending have yet to be realized in any particularly meaningful way."

Some of the rise in sales last month reflected higher gasoline prices, which lifted receipts at service stations. Gasoline prices were driven to four-year highs by disruption linked to the Iran war. They have since retreated, with the national retail average slipping below $4 a gallon this week for the first time since April.

Retail sales excluding automobiles, gasoline, building materials and food services increased 0.7% in May after an unrevised 0.5% advance in April. These core retail sales correspond most closely with the consumer spending component of gross domestic product. Also on Wednesday, the Commerce Department's Census Bureau said business inventories rose as expected for April, and the National Association of Realtors said pending home sales rose to a six-month high in May, rising more than economists had forecast.

(Reporting by Lucia Mutikani, Howard Schneider, Karen Brettell, Colin Barr; editing by Barbara Lewis, Will Dunham and Rod Nickel)