By William Watts, MarketWatch , Sunny Oh

Treasury yields rose modestly on Wednesday as the Federal Reserve delivered its first rate hike of the year, highlighting the strength of the economic outlook.

However, the central bank kept its projections for the number of rate hike this year to three instead of the more aggressive four, as some had anticipated.

What are Treasury yields doing?

The yield on the 10-year Treasury note was up by 2 basis points to 2.901%, the highest since Feb. 27, while the 30-year Treasury bond yield picked up 1.3 basis points to 3.126%, according to WSJ Market Data Group.

The 2-year note yield , the most sensitive to expectations for monetary policy, fell 2.5 basis point to 2.312%, slipping away from its highest levels since Sept. 2008.

Bond prices move in the opposite direction of yields.

What's driving the market?

The Fed's rate setting Federal Open Market Committee delivered a quarter-percentage-point rate hike, as expected, bringing up the fed-funds rate to 1.50% to 1.75%. The so-called dot plot--made up of individual policy maker's anonymous rate forecasts--kept a median forecast of three rate increases in 2018, frustrating the expectations of hawkish analysts who saw upside risks to growth and inflation would pressure the central bank to lift their projection to four rate increases this year.

The dot plot did, however, raise the forecast for interest rates by the end of 2020 to around 3.4%. That is well above the Fed's revised estimate of 2.9% for the neutral rate, or where interest rates neither stimulates or slows economic activity.

Economic projections for inflation and unemployment were virtually unchanged for this year, but the statement highlighted strengthening growth and inflation in the near-term. The introduction of fiscal stimulus into the ninth year of the economic expansion and the general improvement in economic data has shifted traders' attention to a buildup of inflationary pressures this year.

In the news conference, Fed Chairman Jerome Powell said he didn't see signs that inflation would accelerate, asserting the need for a "middle ground" when it came to hiking interest rates.

See:Fed raises interest rates, but it's sticking to cautious strategy for 2018 (http://www.marketwatch.com/story/fed-lifts-rates-in-powells-first-meeting-says-outlook-has-strengthened-2018-03-21)

Read: Fed hikes rates and boosts outlook ahead of Powell press conference: live blog and video (http://www.marketwatch.com/story/fed-interest-rate-decision-and-powell-press-conference-live-blog-and-video-2018-03-21)

What are analysts saying?

With increased fiscal stimulus, the improvement of the economic data "and the likelihood that economic prospects continue to improve, FOMC policy makers want to pursue monetary-policy normalization process at a somewhat faster pace, but do not want to foster the impression that they will be aggressive and risk an economic downturn," said Ward McCarthy, chief financial economist for Jefferies, in a note.

"They're saying the changes are taking place in fiscal policy are meaningful, and will warrant an increase in the fed-funds rate over time. That's still a fairly consistent policy stance. But Powell uses this term middle ground to defining this balance, and why we're looking at three hikes and not four," said Janelle Woodward, global co-head of income at BMO Global Asset Management.

See:What to expect from the new Fed dot plot on interest rates (http://www.marketwatch.com/story/what-to-expect-from-the-new-fed-dot-plot-on-interest-rates-2018-03-16)

What's on tap for economic data

The National Association of Realtors reported existing home sales for February (http://www.marketwatch.com/story/existing-home-sales-snap-back-even-as-inventory-slides-to-a-fresh-low-2018-03-21)ran at an annual pace of 5.54 million in February, jumping 3% from January.

What other assets are on the move?

The German 10-year government bond yield ticked up by 1.1 basis point to 0.590%.

(END) Dow Jones Newswires

March 21, 2018 16:24 ET (20:24 GMT)