Updates with Fed policy announcement

By Chuck Mikolajczak

NEW YORK, Dec 10 (Reuters) - U.S. Treasury yields extend declines on Wednesday, after the Federal Reserve cut interest rates but signaled it will likely hold off on further cuts, in a move that was widely anticipated by market participants.

The Fed reduced rates by 25 basis points and its new economic projections showed the median policymaker sees just one quarter-percentage-point cut in 2026, the same outlook as in September. The decision to cut by 25 basis points drew three dissents.

"The quarter percent rate cut was in line with expectations. Three dissents were a little bit better than the previous voting," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

"The 25 basis point rate cut was widely expected and the economic projections remain optimistic. I would view this as a semi-dovish, cautious statement.”

Investors will now eye comments from Fed Chair Jerome Powell for insight into the path of interest rates.

Yields around the globe have been climbing in recent weeks, as many central banks have signaled they are either at or near the end of their own easing cycles, while the Bank of Japan is widely anticipated to hike rates at its policy meeting next week.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB fell 2.6 basis points to 4.16% after dropping as low as 4.147% and was on track to snap a four-session streak of gains, its longest run in five weeks.

Earlier in the session, U.S. economic data showed the Employment Cost Index (ECI), the broadest measure of labor costs, rose 0.8% in the last quarter, versus expectations of economists polled by Reuters for a 0.9% advance, after gaining 0.9% in the second quarter.

The yield on the 30-year bond US30YT=TWEB shed 1.8 basis points to 4.791%.

Several major brokerages had recently forecast a cut by the Fed for Wednesday's meeting and expectations for a 25 basis point reduction were nearly 90% heading into the meeting, according to CME's FedWatch Tool.

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 59.4 basis points, its highest since September 5.

After solid auctions of 3-year US3YT=RR and 10-year notes earlier this week, more supply will come to the market on Thursday in the form of $22 billion in 30-year bonds.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, declined 4.6 basis points to 3.567%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.314% after closing at 2.332% on Tuesday.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.259%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak, additional reporting by Stephen Culp; editing by Philippa Fletcher)

((charles.mikolajczak@tr.com; @chuckmik.bsky.social))