By William Watts, MarketWatch

The Fed's interest-rate outlook, Powell comments will come in focus

Treasury prices edged higher Wednesday, pulling down yields, as investors awaited a Federal Reserve decision that's widely expected to deliver the third rate increase of 2018 but will be closely watched for any updates to policy makers' expectations on the pace of further tightening.

Read:Here's what bond traders will be watching when the Fed makes its rate decision (http://www.marketwatch.com/story/heres-what-bond-traders-will-be-watching-when-the-fed-makes-its-rate-decision-2018-09-25)

Remarks by Fed Chairman Jerome Powell in his news conference following the decision will also be parsed.

See:Here's how the Fed's statement, dot plot and forecast may shift (http://www.marketwatch.com/story/heres-how-the-feds-statement-dot-plot-and-forecast-may-shift-2018-09-25)

The yield on the 10-year Treasury yield fell 1.8 basis points to 3.081%, a day after trading above 3.10% and finishing at its highest level since May. The yield on the 2-year Treasury note , more sensitive to rate moves and expectations, was down 0.4 basis point at 2.835% after ending Tuesday at its highest since 2008. The yield on the 30-year Treasury bond fell 1.7 basis points to 3.213%. Yields and debt prices move in opposite directions.

Check out:With its last easy decision, Fed will try to avoid adding fuel to the fire (http://www.marketwatch.com/story/with-its-last-easy-decision-fed-will-try-to-avoid-adding-fuel-to-the-fire-2018-09-21)

Also see:The Powell Fed can make history if it can slow the economy without crashing it (http://www.marketwatch.com/story/the-powell-fed-can-make-history-if-it-can-slow-the-economy-without-crashing-it-2018-09-24)

The Fed decision will be released at 2 p.m. Eastern, with Powell's news conference set to get under way a half-hour later. Fed-funds futures show investors see a more than 90% probability (https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html) the bank's Federal Open Market Committee will lift the rate by a quarter of a percentage point to a range of 2% to 2.25%.

As for the Fed forecasts, the main event will be the outlook for future rates, known as the "dot plot," a graphic mapping future rate expectations for policy makers. Currently, those forecasts, as represented by the "median dot" reflect expectations for rate increases Wednesday and in December and three more in 2019.

"With a 25 basis point rate hike fully discounted and another hike in December seen with over 90% probability, market focus will be on the guidance for the following years after board member and former dove [Lael] Brainard suggested that the Fed could also lift rates above the long-term neutral rate, currently perceived at around 3%," wrote Christoph Rieger, rates strategist at Commerzbank, in a note.

More evidence that the Fed stands ready to push the fed-funds rate above the neutral rate--the rate that's expected to neither boost nor slow economic growth--"would trigger further adjustments as markets have 'only' caught up with the current longer-term dots over recent weeks by almost fully pricing in another two hikes for next year," he said.

See:Economy keeps pumping, but now the Fed wants to let out some air (http://www.marketwatch.com/story/economy-keeps-pumping-but-now-the-fed-wants-to-let-out-some-air-2018-09-22)

Ahead of the Fed hoopla, data showed August new home sales (http://www.marketwatch.com/story/new-home-sales-tick-up-as-housing-shortfall-tops-4-million-2018-09-26) ran at a seasonally adjusted annual rate of 629,000. Economists surveyed by MarketWatch produced a consensus forecast for the pace of sales to slip to a 625,000 annual rate from 627,000 in July. However, hefty revisions to prior months were all downward, a reminder that the housing recovery remains grudgingly slow.

(END) Dow Jones Newswires

September 26, 2018 10:18 ET (14:18 GMT)