(Bloomberg) -- US Treasuries pared their gains Wednesday after Federal Reserve Chair Jerome Powell said it’s unlikely that the central bank will start cutting interest rates in March even as he expressed confidence that it’s reining in inflation.

Powell’s comments followed the Fed’s statement indicating that there’s no rush to ease policy. While it held its key rate steady, as expected, policymakers signaled that they are taking a cautious approach before shifting tacks. 

The message from the Fed chipped away at the rally from earlier in the day, when yields slid as data showed a cooling in the labor market and an unexpected quarterly loss at a New York bank reignited concerns about the financial health of regional lenders.

But Treasury yields remained down on the day as Powell’s confident tone on the bank’s progress on pulling inflation back toward its target left traders continuing to bet on a steep series of rate cuts this year. 

Two-year Treasury yields were down by 6 basis points at 4.27% after Powell’s press conference concluded, compared with a drop of as much as 15 basis points earlier in the day. The 10-year yield was down 5 basis points at 3.99%. 

“The market is latching on to anything that sounds remotely dovish, and thus far, the messaging is about when — not if — there are cuts,” said George Goncalves, head of US macro strategy at MUFG.

Rate-cut expectations were bolstered by job creation and labor-cost data released earlier Wednesday. At the same time, investors sought havens after New York Community Bancorp’s shares tumbled when it reported an unexpected quarterly loss, evoking the worries about the US banking system that flared last year after the collapse of Silicon Valley Bank. 

The Treasury rally underpinned government bonds globally, with bigger yield declines in several euro-zone markets after slower-than-expected French inflation readings helped the outlook for European Central Bank interest-rate cuts.

Earlier, bonds drew support from the January ADP employment report and data on fourth-quarter employment costs — both of which increased less than estimated — as well as from the Treasury’s announcement of auction sizes for the February-to-April quarter. Treasury said the increases it made were likely to be the last ones for at least several quarters.

“Powell’s press conference made it clear that the FOMC’s base case is to not cut the overnight rate at the March meeting, although the Fed will remain data dependent,” said Phillip Neuhart, director of market and economic research at First Citizens Bank Wealth. “We believe the Fed may begin reducing the federal funds rate around mid-year, but only make three or four cuts during 2024.”

--With assistance from Edward Bolingbroke, Alexandra Harris and Liz Capo McCormick.

(Updates throughout.)

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