(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.