TREASURIES-Yields subdued before Fed's economic, interest rate projections

By Karen Brettell

March 20 (Reuters) - U.S. Treasury yields were little changed on Wednesday as investors waited on updated economic and interest rate projections at the conclusion of the Federal Reserve’s two-day meeting for clues on the path of monetary policy.

The U.S. central bank is expected to hold rates steady, but traders will be watching to see if they increase their growth and inflation expectations, or cut their projections for how many times they are likely to cut interest rates this year.

“The risk is really skewed towards an inflation forecast which is revised higher,” said Dan Siluk, head of global short duration & liquidity and portfolio manager at Janus Henderson Investors. “That would undoubtedly be a hawkish posturing by the Fed and the market response would be one that sends yields higher.”

Stickier than expected consumer and producer price releases in January and February has raised concerns that it will take longer for the Fed to bring inflation closer to their 2% annual target, and in turn delay rate cuts.

Analysts have noted, however, that the data was likely impacted by seasonal factors and that it doesn’t necessarily mean that disinflation won’t continue on track.

Fed Chair Jerome Powell is also likely to want to avoid unduly increasing market volatility by "flip flopping" in his views, said Siluk.

“Our expectation is for little change either in inflation forecasts or the 'dot plot,' and so rates should remain fairly rangebound from here,” Siluk said.

The so-called “dot plot” maps interest rate expectations of Fed policymakers. In December it showed a median estimate for three 25 basis point rate cuts this year.

Thomas Simons, a money market economist at Jefferies, said that with investors anticipating the possibility of more hawkish forecasts, “the potential for a surprise is even less” and the "dot plot" might be read as dovish if it continues to show expectations for three rate cuts this year.

Ultimately, “the Fed doesn’t have a set plan for what they intend to do, they are really just waiting for the data to tell them what they should do,” Simons said.

Fed funds futures traders are pricing in around 73 basis points of rate cuts by year-end, with the first most likely to occur in June.

Benchmark 10-year yields were last down less than a basis point on the day at 4.289%. Two-year yields fell by half a basis point to 4.687%.

The inversion in the yield curve between two-year and 10-year yields widened by half a basis point to negative 40 basis points.

(Reporting By Karen Brettell, Editing by Nick Zieminski)