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Fed's Bowman, Waller were the two governor dissenters

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Fed's Powell says too soon to flag September rate cut

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US rate futures lower odds of September rate cut to 50%

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Enough evidence to suggest Fed should be cutting -PGIM

economist

(Adds new comment, earlier US data, yield curve)

By Gertrude Chavez-Dreyfuss

NEW YORK, July 30 (Reuters) - U.S. Treasury yields rose

on Wednesday after Federal Reserve Chair Jerome Powell said it's

too soon to say whether the central bank will cut its interest

rate target in September.

"We have made no decisions about September, we don't...do

that in advance," Powell said at a press conference after the

Fed held interest rates steady at the end of a two-day policy

meeting, as widely expected.

He said going forward, "we'll be taking that information"

about the economy in the run-up to the next central bank

gathering.

In standing pat for a fifth straight policy meeting, the Fed

cited low unemployment and solid labor market conditions. But it

noted that economic growth "moderated in the first half of the

year," boosting the case to lower rates at a future meeting

should that trend continue.

The Fed kept its benchmark overnight interest rate tethered in

the 4.25%-4.50% range. Wednesday's Fed decision, however, saw

two dissenting votes by governors, the most in more than three

decades.

In late afternoon trading, the benchmark U.S. 10-year yields

were last up 4.4 basis points (bps) at 4.372%, while

the two-year yield, which reflects interest rate expectations,

was up 5.7 bps at 3.932%.

U.S. 30-year yields were also higher on the day, up 3.1 bps at

4.899%.

"There's enough evidence to suggest that the Fed should be

cutting right now...we do think that beneath the surface

economic activity has slowed down and that's true whether you're

looking at consumption or it's true whether you're looking at

labor," said Tom Porcelli, chief U.S. economist, at asset

manager PGIM in Newark.

"In many ways the Fed is haunted by the ghost of (a)

transitory past. That gives them an element of pause...I think

because of the transitory mistake, it slows down their reaction

function," he said, referring to the Fed's slow response to

inflation during the pandemic years on views it would be

short-lived.

Both Vice Chair for Supervision Michelle Bowman and Governor

Christopher Waller, who has been mentioned as a possible nominee

to replace Powell when his term expires next May, were appointed

to the board by Trump and "preferred to lower the target range

for the federal funds rate by one quarter of a percentage point

at this meeting," the Fed's policy statement said.

Treasury yields briefly ticked lower after the disclosure of

the two dissenting votes.

Federal funds futures, which are tied to the U.S. central

bank's monetary policy, are implying lower odds of a rate cut in

September with a 50% probability, according to LSEG

calculations. That was 65% before the Fed statement.

U.S. rate futures also reduced the expected pace of easing

this year to just 39 bps. That was 44 bps before the Fed

decision.

In other parts of the bond market, the yield curve flattened,

with the gap between two-year and 10-year yields narrowing to 43

bps after Powell's press conference, compared

with 44.9 bps late on Tuesday.

The curve flattened after the Fed chief gave no signal of a

September cut, leading investors to sell two-year Treasuries,

pushing their yield higher.

Earlier in the session, the U.S. yields gained after data showed

gross domestic product increased at a 3.0% annualized rate last

quarter, the Commerce Department's Bureau of Economic Analysis

said in its advance estimate of second-quarter GDP.

"This report likely gives the Fed a little more air cover to

hold rates steady through summer," wrote Scott Helfstein, Global

X's head of investment strategy, in emailed comments.

At the same time, U.S. private payrolls increased more than

expected in July, the ADP National Employment Report showed on

Wednesday.

Private payrolls rose by 104,000 jobs last month after a

revised 23,000 decline in June. Economists polled by Reuters had

forecast private employment increasing 75,000 following a

previously reported drop of 33,000 in June.