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"Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy." The group also "discussed several risk-management considerations that could bear on future policy decisions," the minutes said. U.S. Treasury yields hit session highs after the release of the minutes while U.S. stocks extended losses. Fed staff said they expected a "step-down" in underlying prices over the second half of this year. Investors in contracts tied to the federal funds rate are betting heavily that the Fed won't raise its policy rate again during the current tightening cycle.

Persons: Howard Schneider, Michael S, Ann Saphir, Paul Simao Organizations: Federal Reserve, U.S, Federal, Market, Treasury, Fed, Derby, Thomson

Powell acknowledged as a positive development that inflation has fallen from the highs of last year without serious damage to the economy. "We'll be comfortable cutting rates when we're comfortable cutting rates, and that won't be this year," Powell said. 'MODERATE' GROWTHU.S. Treasury yields slid in choppy trading after the release of the Fed policy statement, while U.S. stocks ended largely unchanged. Futures markets showed little change in bets on the path of Fed rate increases over the remainder of the year, with small odds given to a rise in September. Though Powell said Fed staff had relaxed a prediction of a recession in coming months, outside analysts still think that's what it may take to finish the inflation fight.

Persons: Powell, Jerome Powell, Elizabeth Frantz Powell, what's, Kathy Bostjancic, nodded, Taylor Swift, he's, Veronica Clark, we're, Howard Schneider, Michael S, Safiyah Riddle, Paul Simao Organizations: Federal Reserve, Fed, Reuters, U.S . Federal Reserve, Federal, Committee, REUTERS, Treasury, Nationwide, Citi, Derby, Thomson Locations: WASHINGTON, U.S, Washington , U.S

"We'll be comfortable cutting rates when we're comfortable cutting rates and that won't be this year," Powell said. Yields on both the two- and 10-year Treasury notes moved down modestly from levels right before the release of the Fed's policy statement, while U.S. stocks ended mixed. Futures markets showed bets on the path of Fed rate increases over the remainder of the year were little changed, seeing small odds of a rise in September. "The forward guidance remains unchanged as the committee leaves the door open to further rate hikes if inflation does not continue to trend lower," said Kathy Bostjancic, chief economist at Nationwide. He also noted that Fed staff economists are no longer predicting a recession as they have at recent meetings.

Persons: Powell, Jerome Powell, what's, Kathy Bostjancic, he's, Howard Schneider, Michael S, Paul Simao Organizations: Federal Reserve, U.S, Treasury, Nationwide, Fed, Reuters, Thomson Locations: WASHINGTON, U.S

It was a subtly optimistic message that tempered otherwise hawkish projections that see the policy rate rising higher than market participants anticipated. In fact, investors in contracts tied to the Fed's policy rate see the central bank delivering only one quarter-percentage-point increase by the end of the year. They see about a 65% chance of a rate hike next month, up only slightly from before this week's meeting. A dovish decision, a hawkish statement, and very hawkish dots," wrote economists at the analytics firm of Larry Meyer, a former Fed governor. Fed officials at the median more than doubled their outlook for 2023 economic growth to 1%, from 0.4% in the March projections.

Persons: Fed's Powell, Jerome Powell, Powell, Subadra Rajappa, Larry Meyer, Howard Schneider, Bansari Mayur, Chizu Nomiyama, Paul Simao Organizations: Federal Reserve, Societe Generale, Fed, Market, Nasdaq, Dow Jones, Wednesday, Thomson Locations: WASHINGTON, U.S

Further rate increases would "take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," it said. The new projections, adding a hawkish tilt to Wednesday's interest rate decision, show policymakers at the median see the benchmark overnight interest rate rising from the current 5.00%-5.25% range to a 5.50%-5.75% range by the end of the year. Half of the 18 Fed officials penciled in their "dot" at that level, with three seeing the policy rate moving even higher - including one official who sees it rising above 6%. Two Fed officials see rates staying where they are, and four see a single additional quarter-percentage-point increase as likely appropriate. Reporting by Howard Schneider; Additional reporting by Bansari Mayur Kamdar; Editing by Paul SimaoOur Standards: The Thomson Reuters Trust Principles.

Persons: Sam Stovall, Howard Schneider, Bansari Mayur, Paul Simao Organizations: Federal Reserve, Market, SFRA Research, Thomson Locations: WASHINGTON, U.S

Only "a few" participants outright favored a larger half-percentage-point increase at the meeting, or said they "could have supported" it. Bond yields rose following the release of the minutes and the U.S. dollar also advanced against a basket of currencies, but U.S. stocks pared gains. The yield on the 2-year Treasury note , the government bond maturity most sensitive to Fed policy expectations, rose about 4 basis points from its level before the release to about 4.69%. Traders of futures tied to the Fed policy rate added to bets on at least three more quarter-percentage-point rate hikes at upcoming meetings, with contract pricing pointing to a top federal funds rate range of 5.25%-5.50%. The central bank has raised its policy rate over eight meetings from a starting point near zero last March to the current 4.50%-4.75% range.

Nov 4 (Reuters) - Even as global central banks rapidly tightened financial conditions this year, U.S. households, banks and businesses have so far been able to adapt, Federal Reserve Vice Chair Lael Brainard said as the Fed released its semiannual report on financial stability. More than half of those participating in the survey cited market liquidity and stress as a "salient risk," an issue not mentioned at all in the Fed's May financial stability report. TREASURY MARKET CONCERNS REVISITEDThe report noted deteriorating liquidity in the Treasury market, but said that overall it had functioned smoothly over the last few months. Liquidity conditions were particularly poor for older vintages of bonds - so-called "off the run" securities - and for Treasury Inflation Protected Securities, the report found. The Inter-Agency Working Group on Treasury Market Surveillance - comprising officials from the Fed Board, Treasury, New York Fed, Securities and Exchange Commission and Commodity Futures Trading Commission - is expected to provide an update on its progress toward enhancing the resilience of the Treasury market, the Fed said, though it did not provide a timeline for that.

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