(Bloomberg) -- US Treasuries were off their sessions highs late on Friday after a closely watched batch of inflation data came in below expectations, leading traders to lift the outlook for Federal Reserve interest-rate reductions next year.

The policy-sensitive two-year Treasury yield was a touch lower at 4.31% late afternoon Friday, and after an early slide to 4.25%. The benchmark 10-year rate was down 4 basis points to 4.51% in late trade. The moves unwound a sharp steepening trend this week that had pushed a portion of the yield curve to its steepest since 2022. Treasuries held their early gains after a University of Michigan survey showed US consumer sentiment rose for a fifth month in December.

The earlier Friday data showed that in November the core personal consumption expenditures price index, the Fed’s preferred measure of underlying inflation, increased 0.1% from October and 2.8% from a year earlier — both levels slightly below consensus forecasts.

Swaps traders are pricing in about 39 basis points of total Fed cuts next year, which implies less than two full quarter-point reductions. But many on Wall Street expect the central bank to cut more by more than that.

“We are anticipating more cuts from the Fed next year,” Subadra Rajappa, head of US rates strategy at Societe Generale, said on Bloomberg Television. She said the firm’s economists expect four quarter-point Fed cuts next year. “The way the economy is going you should see a moderation in growth, you should see a moderation in employment, you should see a moderation in inflation,” she said.

Pressure this week on long-dated debt pushed 10-year Treasury yields above the two-year rate by the most since 2022.

The steepening came after the Fed on Wednesday signaled a slower pace of rate cuts next year given signs of sticky inflation. The median of Fed officials’ quarterly forecasts implied two quarter-point rate reductions in 2025, relative to the four moves they projected in September.

“The Fed is trying to communicate a shift to the next phase in the easing cycle,” said Julian Potenza, portfolio manager at Fidelity Investments. “Overall, there’s a pretty wide distribution of potential outcomes for policy next year, but for us, we think the base case is probably a continuation of a modest easing cycle.”