U.S. stocks closed modestly higher as investors sought insight on the timing of a rate hike from the Federal Reserve statement and Fed Chair Janet Yellen's remarks. (Tweet This)
The Federal Reserve held interest rates at zero and provided only faint clues about when the first hike in nine years might occur. The central bank downgraded the GDP forecast for the year to 1.8-2 percent while raising longer-term growth expectations.
"I believe the initial sense is, ok, a bit of relief, and 'we can go back to where we were,'" said JJ Kinahan, chief strategist at TD Ameritrade.
Stocks extended early gains as Yellen said during an afternoon press conference that markets should focus on the pace of rate increase rather than the timing of the initial hike.
"She sees a gradual rate rise—that's what the market latched on to," said Jack Ablin, chief investment officer at BMO Private Bank.
Bill Stone, chief investment strategist at PNC Asset Management, said there's a "fight between the two sides" of gradual tightening and increased likelihood of a rate hike this year. He noted the median of policymaker rate targets for 2016 and 2017 was lowered in the Fed's "dot plot."
"The front end of the yield curve liked the continued decline in the dot plot in 2016 and 2017," said Brandon Swensen, co-head of the fixed income desk at RBC Global Asset Management. "As long as the dots continue to head towards market expectations, rates don't need to move up to match the dot plot. The market continues to, correctly in our view, call the Fed's bluff on how high, and how fast, short rates will rise."
The major averages traded higher after wavering on the release of the Fed statement. The U.S. 10-year Treasury yield was 2.31 percent, unchanged for the day. The 2-year yield initially spiked before giving back early gains to trade at 0.67 percent.
"Investors are still digesting the news as to what this means but overall I don't think there were any surprises," said Myles Clouston, senior director at Nasdaq Advisory Services.
Equity gains were moderate. The Dow approached, but did not exceed, a 100-point gain, The index leaped more than 200 points after a dovish Fed statement in March.
"It's a little muted now because the Fed is contemplating on a consistent basis a change in rates," said Alan Rechtschaffen, financial advisor and senior vice president at UBS Wealth Management Americas. "At the same time, the news is good. The Fed is going to remain accomodative enough that the market can rally."
The dollar fell more than half a percent, with the euro near $1.134 and the greenback higher against the yen at 123 .
Stocks traded lower ahead of the release, giving back opening gains.
With consensus for a rate hike in September at the earliest, most investors did not expect major policy changes from the central bank's announcement.
"I think we're going to stay in this trading range," said Bruce Bittles, chief investment strategist at RW Baird. He noted that, in an encouraging sign, the S&P 500 twice held support at the 2,070 level, once last week and once on Monday. As stocks climb, he said 2,120 is the resistance level.
However, analysts noted anticipations of a hawkish statement. Bond yields rose in early afternoon trade, with the U.S. 10-year Treasury yield gaining more than 5 basis points to 2.38 percent and the near 0.74 percent. The 10-year German bund yield gained to trade around 0.81 percent.
Traders also kept an eye on the Greece debt negotiations ahead of the euro group meeting of regional finance ministers on Thursday.
Greek negotiator Euclid Tsakalotos said in a Reuters report Wednesday that the country is willing to make concessions but pension cuts cannot be on the agenda. He confirmed that Athens does not have enough funds to make the debt repayment to the International Monetary Fund due on June 30.
Read MoreWhy should we care about Greece?
The European Central Bank raised the Emergency Liquidity Assistance for Greece to 84.1 euros from 83.0 euros. Greek banks are reliant on this funding and analysts warn that if the central bank curbs this liquidity, Greece may have no option but to impose capital controls.
"Greece is a threat (to the Fed) only if it's a threat to the markets," said Peter Cardillo, chief market economist at Rockwell Global Capital.
European stocks closed lower as caution ahead of the Fed and ECB meetings weighed, while Chinese stocks closed higher. Japan's blue-chip Nikkei 225 stock index ended a touch lower.
U.S. stocks closed higher on Tuesday as the Fed began its two-day meeting and investors attempted to shake off worries about Greece debt talks, which reached an impasse over the weekend.
In individual stock moves, FedEx closed nearly 3 percent lower to weigh on the Dow transports after the company missed earnings and revenue expectations on Wednesday.
Microsoft ended the day 0.30 percent higher after the company's announced changes to its executive team. The reshuffle includes the departure of Stephen Elop, executive vice president of Microsoft Devices Group and the former CEO of Nokia.
Oracle was among a handful of companies reporting earnings after the close.
The closed up 4.15 points, or 0.20 percent, at 2,100.44, with utilities leading eight sectors higher and financials and energy the only decliners.
The Nasdaq closed up 9.33 points, or 0.18 percent, at 5,064.88.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded below 15.
Advancers were a step ahead of decliners on the New York Stock Exchange, with an exchange volume of 709 million and a composite volume of nearly 3.2 billion in the close.
Crude oil futures settled down 5 cents at $59.92 a barrel on the New York Mercantile Exchange. Gold futures ended $4.10 lower at $1,176.80 an ounce.
On tap this week:
Earnings: Oracle, Clarcor, Jabil Circuit, Pier 1 Imports
Earnings: Kroger, Rite Aid, Red Hat, Finisar, Smith & Wesson
8:30 a.m.: Initial claims
8:30 a.m.: CPI
8:30 a.m.: Current account Q1
10 a.m.: Philadelphia Fed survey
Earnings: CarMax, KB Home
11:40 a.m.: San Francisco Fed President John Williams on policy
12:45 p.m.: Cleveland Fed President Loretta Mester on community development and the Fed
More From CNBC.com: