NEW YORK The Federal Reserve kept interest rates unchanged on Wednesday but signaled in new economic projections that borrowing costs will likely rise by another half of a percentage point by the end of this year as the U.S. central bank reacted to a stronger-than-expected economy and a slower decline in inflation.

The new projections by the Federal Open Market Committee added a hawkish tilt to Wednesday's interest rate decision, showing policymakers at the median see the benchmark overnight interest rate rising from the current 5.00%-5.25% range to a 5.50%-5.75% range by the end of the year. Half of the 18 Fed officials penciled in their "dot" at that level, with three seeing the policy rate moving even higher - including one official who sees it rising above 6%.

MARKET REACTION:

STOCKS: The S&P 500 turned 0.38% lower

BONDS: Benchmark 10-year note yields jumped to 3.827%; The 2-year note yield rose to 4.755%

FOREX: The euro cut its gain to 0.19% and the U.S. Dollar Index pared a slight loss

COMMENTS:

SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, ALLENTOWN“The market has sold off because investors are concerned that there will be possibly at least two more rate hikes between now and the end of the year with no rate cuts.”“Some people were expecting that the Fed would actually pause this month, but also not raise rates anymore, that they were high enough. While others were thinking that they'll pause at this meeting but maybe add one more hike in July and then that would be it. However, it does seem as if the FOMC members have become even more hawkish since the last meeting, and I think that has taken investors by surprise.”

PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW INVESTMENT MANAGEMENT, CHICAGO

"You're looking at an economy that is in some areas running very hot, the services side especially and they're (Fed) waiting for unemployment to turn higher, which it hasn't really."

"It's not a surprise to see the market sell off a little bit because they have been so bullish in anticipating that the Fed is going to continue to be dovish and it has been proven wrong consistently."

MICHAEL JAMES, MANAGING DIRECTOR, EQUITY TRADING, WEDBUSH SECURITIES, LOS ANGELES

"The market was pretty overbought going into the meeting and any sign of hawkish commentary was going be negative. We received it and that's the initial knee jerk reaction. We need to get more color from Chair Powell but the initial statement clearly reads more hawkish than the market was prepared for, at least coming into the statement."

(Compiled by the Global Finance & Markets Breaking News team)