December 17, 2018 / 2:39 PM / 8 months ago

TREASURIES-Bonds steady as Fed meeting on Wednesday in focus

    * Fed expected to raise interest rates on Wednesday
    * Rate outlook for 2019 in focus

    By Karen Brettell
    NEW YORK, Dec 17 (Reuters) - U.S. Treasuries were steady on
Monday as investors looked ahead to the conclusion of the
Federal Reserve’s two-day meeting on Wednesday, when the U.S.
central bank is widely expected to raise interest rates.
    Investors will be focusing on the Fed’s outlook and how many
rate increases are likely next year.             
    Weak stock markets and slowing international growth have
raised speculation that the Fed will need to pause its
tightening cycle or risk harming the U.S. economy.
    “The ball is rolling towards dovish expectations even after
they do the hike,” said Jim Vogel, an interest rate strategist
at FTN Financial in Memphis, Tennessee.
    Continuing strong data in the United States may, however,
make the U.S. central bank less likely to adopt the more dovish
tone that many investors are expecting.
    “The odds that people are going to be disappointed are
really fairly high, because it really was just three months ago
that the Fed said, 'you know, we probably need to get a little
bit more hawkish than we have been,'” Vogel said.
    The Fed in September, when it last raised interest rates,
forecast that the U.S. economy would enjoy at least three more
years of growth.             
    Fed Chairman Jerome Powell also said in October that the key
interest rate was probably still a "long way" from a so-called
neutral level and that the Fed might even tighten policy beyond
that, before saying last month that the policy rate is now "just
below" neutral.              
    Benchmark 10-year notes             were unchanged in price
on Monday, yielding 2.889 percent. The yields have fallen from a
seven-year high of 3.261 percent on Oct. 9.
    The closely watched yield curve between two-year and 10-year
notes                was last at 16 basis points, after
shrinking to less than 10 basis points earlier this month for
the first time since the financial crisis.
    An inversion of the two-year, 10-year yield curve would be
viewed as a signal that a recession is likely to occur around 18
to 24 months later.
    U.S. President Donald Trump on Monday continued to criticize
the Fed for continuing to raise rates, which he says may harm
U.S. economic growth.
    "It is incredible that with a very strong dollar and
virtually no inflation, the outside world blowing up around us,
Paris is burning and China way down, the Fed is even considering
yet another interest rate hike. Take the Victory!" Trump wrote
in a tweet.             

 (Reporting by Karen Brettell; Editing by Steve Orlofsky)
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