(Adds comment, reaction to Fed) By Herbert Lash NEW YORK, Sept 22 - U.S. Treasury prices rallied on Wednesday after the Federal Reserve said it would reduce its monthly bond purchases "soon" and signaled higher interest rates may follow more quickly than expected. Nine of the U.S. central bank"s 18 policymakers projected borrowing costs will need to rise next year in the Fed"s economic projections and policy statement, following a two-day meeting that represents a hawkish tilt. The Fed also sees inflation running this year at 4.2%, more than double its target rate and positioned itself to rein that in. The yield on the benchmark 10-year Treasury note was down 2 basis points at 1.304% after the Fed released its policy statement and summary of economic projections. Joseph LaVorgna, chief economist for the Americas at French bank Natixis in New York, said without knowing who is who in what is known as the Fed"s dot-plot of economic projections, it"s hard to say if it accurately reflects the central bank"s thinking, as Fed Chair Jerome Powell and other policy-setters are considered dovish. "I don"t think the Fed’s tightening is going to be anywhere near as hawkish as they anticipate. It’s going to be hard for them to execute on this plan as the economy slows next year," LaVorgna said. Yields held steady earlier in the day as fears of imminent contagion from China Evergrande receded. The People"s Bank of China injected 90 billion yuan into the banking system, soothing fears of financial fallout from a default by the debt-laden Chinese property developer. The gap between five-year notes and 30-year bonds fell below 101 basis points to the lowest level since August 2020. The yield on the benchmark 10-year Treasury note was down 2.2 basis points at 1.3023% ahead of remarks from Powell. The market consensus had expected the Fed as soon as November to begin to reduce its Treasury purchases by $10 billion a month and mortgage-backed security purchases by $5 billion a month. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 108.5 basis points. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was unchanged at 0.216%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.451%. The 10-year TIPS breakeven rate was last at 2.298%, indicating the market sees inflation averaging about 2.3% a year for the next decade. September 22 Wednesday 2:34PM New York / 1834 GMT Price Current Net Yield % Change (bps) Three-month bills 0.03 0.0304 0.005 Six-month bills 0.045 0.0456 0.000 Two-year note 99-211/256 0.216 0.000 Three-year note 99-192/256 0.4596 0.008 Five-year note 99-166/256 0.8228 -0.006 Seven-year note 100-36/256 1.1039 -0.019 10-year note 99-132/256 1.3023 -0.022 20-year bond 99-120/256 1.7818 -0.024 30-year bond 103-160/256 1.8417 -0.015 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 11.00 -0.25 spread U.S. 3-year dollar swap 12.00 0.00 spread U.S. 5-year dollar swap 10.50 0.25 spread U.S. 10-year dollar swap 2.50 0.25 spread U.S. 30-year dollar swap -25.25 -0.50 spread (Reporting by Herbert Lash; Editing by Will Dunham and Leslie Adler)