* Fed raises interest rates for second time this year
* Fed forecasts one more rate rise in 2017
* Yields lower on day as traders see weak inflation hindering Fed (Updates with market response to Fed, inflation data)
NEW YORK, June 14 (Reuters) - Long-dated U.S. Treasury yields tumbled to their lowest since early November on Wednesday after surprisingly weak data on inflation and retail sales overshadowed an interest rate hike by the Federal Reserve.
The U.S. central bank raised its benchmark overnight rate to a range of 1.00 to 1.25 percent, its second quarter-point hike this year. Fed policy makers also signaled they were likely to raise rates once more this year, which helped lift yields on two-year notes, the most sensitive to Fed rate policy expectations, from their lows of the day.
But the Fed's cautious outline of its plan for unwinding its $4.5 trillion bond portfolio, which it has used to keep long-term interest rates low to boost economic activity, did little to lift yields further out the yield curve. The Fed initially plans to trim its holdings of Treasuries and mortgage bonds by a combined $10 billion a month, seen as a very gradual pace.
As a result, the Treasury yield curve flattened, with the spread between 2- and 10-year yields narrowing to less than 80 basis points, its tightest since early September.
The big moves in the day came early, however.
Government data on inflation and retail sales for May fell well short of market expectations. The core rate of inflation, which strips out food and energy costs, rose at just 1.7 percent year over year, the fourth straight monthly deceleration and the slowest pace overall in two years.
Bond yields plunged by the most in a month following the data.
While the Fed later stood by its conviction that the recent softening in inflation was not a long-term threat, long- and medium-dated yields remained not far from their lowest levels since November hit after the weak inflation data.
"The market remains highly skeptical that the Fed is going to be able to deliver just based upon underlying data," said Mark Cabana, head of U.S. short rates strategy at Bank of America Merrill Lynch in New York.
U.S. 10-year yields were last at 2.127 percent after touching 2.103 percent earlier, their lowest since Nov. 10. U.S. 30-year yields were last at 2.769 percent after touching their lowest since Nov. 9 of 2.765 percent earlier.
U.S. two-yields were last at 1.335 percent, down 3 basis points on the day. (Reporting by Sam Forgione; Writing by Dan Burns; Editing by Diane Craft and James Dalgleish)