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Fed's Powell says "time has come" to cut rates

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U.S. rate futures price in higher odds of 50 bps cut in

Sept

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U.S. 10-year yield on pace for largest daily gain in three

weeks

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U.S. 2/10 yield curve bull steepens as easing priced in

(Adds analyst comment, byline, details, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 23 (Reuters) - U.S. Treasury yields fell

across the board on Friday after Federal Reserve Chair Jerome

Powell, in prepared remarks, delivered his strongest signal yet

that interest rates are coming down most likely at the next

policy meeting in September.

The benchmark 10-year yield fell 5.7 basis points (bps) to

3.804%. It was on track to post its largest daily

decline in nearly three weeks.

U.S. 30-year yields slid 4.8 bps to 4.088%.

On the short end of the curve, the two-year yield, which

reflects interest rate expectations, dropped 7.6 bps to 3.936%

.

In a highly-anticipated speech, Powell said "the time has

come" for the Fed to cut interest rates amid rising risks to the

job market even as inflation was in reach of the U.S. central

bank's 2% target. He spoke at the Kansas City Fed's annual

economic conference in Jackson Hole, Wyoming.

"The direction of travel is clear, and the timing and pace

of rate cuts will depend on incoming data, the evolving outlook,

and the balance of risks," Powell said.

Traders increased bets for a bigger rate cut in

September following Powell's speech, with the fed funds futures

now pricing in a 33% chance of a 50-bp cut next month, up from

about 25% late on Thursday. Traders are pricing in about 102 bps

of cuts by the end of the year.

"Powell has set the stage for rate cuts to commence in

September," said David Doyle, head of economics, at Macquarie

Group in Toronto. "The extent of easing in coming months will

depend on the incoming data tape with the labor market playing

an important role in this."

After Powell's unequivocal signal, the U.S. yield curve

bull-steepened, or narrowed its inversion, with the yield spread

between two- and 10-year notes at minus 13.1 bps, down from

minus 15.8 bps late on Thursday. The curve briefly turned

positive on Aug. 5.

A bull steepener, a scenario in which short-term rates are

falling more steeply than the long end, typically foreshadows a

Fed easing cycle. The belief is that yields on the front end of

the curve have peaked as the expected next move by the Fed is to

cut rates.