* Prices fall ahead of Wednesday's FOMC announcement * Low inflation seen complicating Fed lowering purchases * Fed buys $1.46 bln bonds due 2036-2043 By Karen Brettell NEW YORK, June 18 (Reuters) - Most U.S. Treasuries prices fell on Tuesday in choppy trading as investors looked ahead to a meeting of the Federal Reserve for signs on how close the U.S. central bank is to paring back its bond purchases. The Fed's policy statement, expected on Wednesday, has gained greater importance after Chairman Ben Bernanke said on May 22 the Fed may decide to pare its purchases in the next few meetings if the economic recovery maintains momentum. At the same time, investors think low inflation that is running below the Fed's target of 2 percent potentially complicates the Fed's ability to reduce bond purchases, lest the reduced stimulus causes inflation to continue to fall. The U.S. Consumer Price Index edged 0.1 percent higher in May, the government said on Tuesday, which was slightly weaker than analysts polled by Reuters expected though price pressures showed signs of stabilizing after a long decline. "I don't know that today's number was weak enough to really sway the FOMC, but it's adding confusion to the marketplace as to why they are tapering. I think it makes more volatile moves more likely," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York. Wednesday's announcement will be followed by a news conference by Bernanke. Market gauges of future inflation have tumbled amid a broad bond selloff since Bernanke's comment in May. Inflation expectations as measured by breakevens on five-year Treasuries Inflation-Protected Securities (TIPS) have dropped to 1.83 percent on Tuesday, down from around 2.40 percent in March. "It's very complicated for the Fed, on the one hand their policies aren't having a huge impact on economic growth going forward, on the other hand they need to maintain the ability to act in case deflation does occur," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. Investors have been rocked by confusion over how close the Fed is to paring back its purchases, with Bernanke's comments leading to yields surging amid huge volumes and volatility rising to its highest levels in almost a year. A number of traders and investors are concerned that the bond purchases are creating market dislocations that will make an exit harder and add to risks that the Fed will create new asset price bubbles. After four years of throwing money at the economy, some fear that the stimulus is producing increasingly fewer returns amid these risks. "The buying becomes not useful at a certain point, it has declining utility. The ugly scenario for the Fed is that inflation expectations continue to deteriorate and there's nothing they can do about it," said LeBas. The Fed bought $1.46 billion in bonds due from 2036 to 2043 on Tuesday as part of its ongoing purchases. Benchmark 10-year Treasuries were last down 1/32 in price to yield 2.19 percent. The yields have fallen from 2.29 percent last Tuesday, a high of more than 13 months, but remain significantly higher than about 1.60 percent in early May. Thirty-year bonds rose 3/32 in price to yield 3.35 percent, down from 3.43 percent last Tuesday, also a high of more than 13 months and up from 2.82 percent at the beginning of May. Expectations of future volatility in government bonds remained elevated near one-year highs. The Merrill Lynch MOVE index, which estimates future volatility of long-term bond yields was at 78.5 on Tuesday, just below an 11-month high of 84.7 on Monday of last week, and up from a multi-year low of around 50 at the beginning of May.