TREASURIES-Yields pare losses as Fed's Powell sees inflation increase

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 US10YT=RR was last down 0.4 basis points at 4.387%. The interest-rate-sensitive 2-year note US2YT=RR yield fell 1.5 basis points to 3.935%.

The yield curve between two-year and 10-year notes US2US10=TWEB 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.

(Reporting by Karen Brettell; Additional reporting by Charles Mikolajczak; Editing by Nick Zieminski and Rod Nickel)

((karen.brettell@thomsonreuters.com;))