Dec 19 (Reuters) - U.S. 10-year Treasury yields rose to

a fresh 6-1/2-month high on Thursday after the Federal Reserve

flagged a slower pace of easing next year as it lowered rates by

25 basis points (bps).

Fed Chair Jerome Powell said reductions in borrowing costs

hinge on further progress in lowering stubbornly high inflation.

The U.S. 10-year yield hit its highest since

late May at 4.544% in early London trade. It was last up 4.5

basis points after jumping more than 11 bps on Wednesday.

On the front end of the curve, the two-year yield, more

sensitive to the policy rates' outlook, was down 3 bps to 4.33%

after hitting a new three-week high at 4.367% the day before.

Slower progress on inflation, which is not seen returning to

the 2% target until 2027, translates into a slower pace of rate

cuts and a slightly higher ending point for rates at 3.1% in

2027 versus the prior "terminal" rate of 2.9%.

The Fed also released its 'dot plot' interest rate

projections which show they currently anticipate just two

quarter-percentage-point rate reductions by the end of 2025,

half a percentage point less in policy easing next year than

officials anticipated as of September.

Though these expectations can be volatile. "I would caution

against taking too much steer from the dot plot," said Kyle

Chapman market analyst at Ballinger.

"Narratives about inflation and the labour market have swung

countless times over the past few years," Chapman argued.