(Bloomberg) -- US Treasuries trimmed gains after the Federal Reserve reduced the number of projected interest-rate cuts this year to just one, leaving the central bank at odds with the market.

Fed officials left their main policy-rate steady at a two-decade-high of 5.25% to 5.5% on Wednesday and forecast only a single quarter-point cut by the end of the year. Swap contracts that predict decisions by the US central bank, by contrast, still factored in rate reductions in November and December — while odds of a September move faded slightly from earlier in the session. 

Speaking after the central-bank decision and forecasts, Fed Chair Jerome Powell said the actual path of rates would depend on future economic data. He said “we welcome” the cooler May inflation data released earlier Wednesday “and hope for more like that.” Still, Treasury yields rebounded slightly from their lowest levels of the session after the Fed communications. 

“The Fed wants optionality by keeping at least one cut available for the balance of the year,” said George Goncalves, head of US macro strategy at MUFG. 

Treasury yields remained lower by five to nine basis points in late trading after declining by at least 12 basis points, with the five-year note’s falling as much as 18 basis points. 

Policymakers projected four quarter-point cuts in each of the next two years, leaving the median expected policy rate for the end of 2026 at 3.125%, unchanged from March. The median projection for the longer-run interest rate climbed to 2.8% from 2.6% in March. The idea that the so-called neutral rate is probably higher than pre-pandemic has been gaining currency, with former Treasury Secretary Larry Summers among those suggesting it may be closer to 4% than 3%.

The shift to just one projected quarter-point cut this year from three in March was announced several hours after after the May consumer price index unleashed steep gains for bonds, as bond traders reverted to wagers on a reduction as early as September.

The data showed consumer prices were flat in May versus April, slowing the annual rate of inflation to 3.3% from 3.4%. The median estimates of economists in a Bloomberg survey were for a 0.1% monthly increase and no change in the annual rate. The so-called core consumer price index — which excludes food and energy costs — rose at a year-over-year rate of 3.4%, the slowest pace in more than three years.

“For all the economists out there with a September rate cut in their forecast, they’re probably also relieved,” Frances Donald, global chief economist at Manulife Investment Management, told Bloomberg Television after the inflation report. “We’ll take it as a win, it’s good news for consumers, for markets, for all.”

Expectations for Fed interest-rate cuts — following 11 increases during the past two years — had collapsed this year as progress toward lower inflation stalled and other indicators showed the economy coping well with the Fed’s current policy rate band. Also, numerous Fed policymakers in recent months have expressed doubt about the wisdom of imminent rate cuts that could reignite inflation.

In their projections for the economy this year, Fed officials’ median forecast for underlying inflation increased to 2.8% from from 2.6% in March. They maintained their forecasts for economic growth and the unemployment rate at 2.1% and 4% respectively.

--With assistance from Edward Bolingbroke, Carter Johnson and Ye Xie.

(Adds markets moves and comments by Fed Chair Powell.)

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