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Fed cuts rates by 25 basis points, signals further cuts

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Expectations for October cut increase

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Housing starts, building permits data softer than expected

(Updates prices, adds Powell comments)

By Chuck Mikolajczak

NEW YORK, Sept 17 (Reuters) - U.S. Treasury yields were

mostly higher on Wednesday in choppy trading after the Federal

Reserve cut rates by 25 basis points, which was widely

anticipated, as investors awaited comments from Chair Jerome

Powell for insight on the path of monetary policy.

In announcing the cut, the Fed indicated it will steadily lower

borrowing costs for the rest of this year, as policymakers

responded to concerns about weakness in the job market in a move

that won support from most of President Donald Trump's central

bank appointees.

Only new Governor Stephen Miran, who joined the Fed on

Tuesday and is on leave as the head of the White House's Council

of Economic Advisers, dissented in favor of a

half-percentage-point cut.

"They have deemed that the downside risk to employment has

increased, and therefore it would seem that they are weighting

the labor market more than the higher inflation that they noted

in their projections," said Ellen Hazen, chief market strategist

at F.L.Putnam Investment Management in Wellesley,

Massachusetts.

"In other words, they are laying the groundwork for having a

little bit easier policy."

After the cut, Treasury yields initially erased gains and turned

lower on the session before reversing course as Powell spoke,

with the yield on the benchmark U.S. 10-year Treasury note

hitting a session high of 4.081%. It was last up

2.5 basis points at 4.051%.

The Fed Chair said the central bank is in a "meeting-by-meeting"

situation regarding the outlook for rates and he doesn't feel

the need to move quickly.

Yields have fallen in recent weeks as a spate of economic

data that indicated a softening of the labor market boosted

expectations the central bank will be more aggressive in cutting

interest rates. The 10-year note touched a 7-month low of 3.994%

last week.

Prior to the Fed statement, markets were fully pricing in a rate

cut of at least 25 basis points (bps) from the Fed, with a

roughly 4% chance for an outsized cut of 50 basis points,

according to CME's FedWatch Tool.

Market expectations for a cut of at least 25 basis points at the

central bank's October meeting increased after the statement.

The Fed has been under significant pressure from Donald Trump's

administration to rapidly lower rates, and Trump has attempted

to fire Fed Governor Lisa Cook.

The yield on the 30-year bond advanced 0.8

basis point to 4.654%.

Earlier economic data showed U.S. single-family homebuilding and

permits for future construction dropped in August amid a glut of

unsold new houses and a softening labor market, unfazed by

falling mortgage rates.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes, seen as an indicator of economic

expectations, was at a positive 52.3 basis points.

The two-year U.S. Treasury yield, which

typically moves in step with interest rate expectations for the

Fed, climbed 1.6 basis points to 3.526%.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.46% after closing at 2.443% on Tuesday.

The 10-year TIPS breakeven rate was last at

2.383%, indicating the market sees inflation averaging about

2.4% a year for the next decade.

(Editing by Nick Zieminski)