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Fed's Powell expects inflation to rise over the summer

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Concerns about expanding Iran war boost demand for

Treasuries

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New applications for unemployment benefits fell last week

(Updated in New York afternoon time)

By Karen Brettell

June 18 (Reuters) - U.S. Treasury yields pared earlier

declines on Wednesday after Federal Reserve Chair Jerome Powell

said inflation in goods prices is expected to accelerate over

the summer as the impact of President Donald Trump's tariffs

works its way to U.S. consumers.

Powell also cautioned not to place too much stock in the

central bank's interest rate forecasts, which could change based

on incoming data, especially on inflation.

"They don't appear to be in a hurry at all to consider

cutting rates or making ... any sort of concerted move," said

Andrew Wells, chief investment officer at SanJac Alpha in

Houston.

Powell's comments came after the U.S. central bank kept

rates unchanged as widely expected. Policymakers also maintained

expectations for two cuts this year, but a rising minority

expects no rate cuts at all.

The yield on benchmark U.S. 10-year notes was

last down 0.4 basis points at 4.387%. The

interest-rate-sensitive 2-year note yield fell 1.5

basis points to 3.935%.

The yield curve between two-year and 10-year notes

steepened by around two basis points to 45 basis

points.

Concerns the United States will join Israel's war with Iran

has boosted demand for safe-haven U.S. debt and helped send

yields lower earlier on Wednesday.

Iranian Supreme Leader Ayatollah Ali Khamenei rejected

Donald Trump's demand for unconditional surrender on Wednesday,

and the U.S. president said his patience had run out, though he

gave no clue as to his next step.

Offsetting some of the safe-haven demand for Treasuries are

concerns that oil supply could be disrupted.

However, "oil prices have really stabilized after increasing

because there's this cautious optimism that any Israeli strikes

are not going to hit Iranian oil facilities," said Will

Compernolle, macro strategist at FHN Financial in Chicago.

Government data showed foreigners cut their overall Treasury

holdings in April to $9.013 trillion from $9.050 trillion in

March, though Japan and the United Kingdom, the two largest

foreign holders of U.S. debt, increased their holdings.

China, the third-largest holder, cut its holdings by $8.2

billion during the month while Canada cut its position by $57.8

billion.

Treasury yields surged after Trump announced on April 2

higher than expected tariffs, leading to concerns that foreign

investors were moving away from U.S. assets.

The yields stabilized in the weeks after the "Liberation Day"

announcement as Trump delayed implementation of the levies

pending negotiations with trading partners.

Data earlier on Wednesday showed the number of Americans

filing new applications for unemployment benefits fell last

week.

The bond market will be closed on Thursday for the federal

Juneteenth holiday.