At the end of a two-day monetary policy meeting, the Fed said it left the key federal funds overnight bank lending rate at 6.5 per cent, its level since a half-percentage point increase in May.

The Fed also left the more symbolic discount rate on Fed loans to banks unchanged at 6.0 per cent. But at the same time, the Fed warned of inflation risks to the economy, signalling it might resume raising borrowing costs in the months ahead.

In a statement, the central bank said recent data on the economy suggested the pace of US economic growth had moderated, but the signs of more moderate growth were "still tentative and preliminary." The Fed said US labour markets remained unusually tight, but productivity gains were helping to contain cost pressures.

At 2:30 pm (1830 GMT), 10-year notes shaved some losses incurred earlier in the day, trading down 3/32 to 102-26/32, yielding 6.11 per cent. Before the Fed released its statement, they had been off 7/32.

Thirty-year bonds were down 11/32 to 103-30/32, yielding 5.97 per cent. Before the Fed statement, they were down 16/32.

Five-year notes were down 1/32 to 101-28/32, yielding 6.30 per cent. Two-year notes moved into positive territory, up 1/32 to 100-8/32, yielding 6.48 per cent. Short-term rates eased slightly. Treasuries had retreated at the start of the trading session after the Government said orders for durable goods surged 6.0 per cent in May after falling 5.7 per cent in April.

"There's still too many risks in the economy, too many things that could lead to inflation down the road. The market's response seems muted right now," Evergreen Investment Management Co portfolio manager, Gary Pzegeo, said. "The key is to see how the economic numbers play out."

MCM Moneywatch economist James Blumenthal said the Fed made it clear it could well raise interest rates in August.

"It's not a statement that suggests the tightening cycle is over," he said.The Federal Open Market Committee (FOMC), the central bank's interest rate-setting arm, had been widely expected to leave the fed funds rate unchanged on Wednesday after six increases over the past year.

In other developments, the treasury department announced it would repurchase up to $2 billion of 30-year bonds on Thursday, its eighth round of buybacks after announcing its intention to repurchase up to $30 billion of old Government debt by the end of the year.

The buyback targets 13 issues of 30-year bonds maturing between February 2019 and August 2023. Settlement will be made on July 3.