TREASURIES-US yields little changed as Fed statement awaited

By Chuck Mikolajczak

NEW YORK, Sept 17 (Reuters) - U.S. Treasury yields were little changed on Wednesday as investors braced for the latest policy statement from the Federal Reserve and comments from Fed Chair Jerome Powell for clues on the path of monetary policy.

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.

Markets are fully pricing in a rate cut of at least 25 basis points (bps) from the Fed, with a roughly 6% chance for an outsized cut of 50 basis points, according to CME's FedWatch Tool.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB fell 0.4 basis point to 4.022%.

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 while Stephen Miran, on leave as the chair of Trump's Council of Economic Advisers, was just sworn in as a member of the central bank's board on Tuesday.

"The participants of the FOMC have been more in the spotlight this time around than they've been in the past, and so it'll be interesting to see, there's so many pieces to this thing," said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

"It's the rate cuts, that's one piece of it, then the summary of economic projections is another piece, but then the dissenters and what they're looking for. There was just so much noise heading into this one that it will be good to probably just get it behind us, but it's important and it will be interesting."

The yield on the 30-year bond US30YT=TWEB shed 1.6 basis points to 4.63%.

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 US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 50.4 basis points.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, edged up 0.6 basis points to 3.516%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.437% after closing at 2.443% on Tuesday.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.364%, indicating the market sees inflation averaging about 2.4% a year for the next decade.