The change is key as Fed officials consider 2 percent to be a healthy level of inflation and a key for continuing to push rates higher.

The Fed kept interest rates unchanged, as was largely expected. The central bank's policymaking committee also noted that "overall inflation and inflation for items other than food and energy have moved close to 2 percent." That was an upgrade from the March meeting in which the FOMC said the indicators "have continued to run below 2 percent."

The Dow Jones industrial average declined 174.07 points to 23,924.98, while the fell 0.7 percent to 2,635.67. The Nasdaq composite also dropped 0.4 percent to close at 7,100.90. The major indexes initially popped after the the central bank made its announcement, but sold off sharply in the last hour of trading.

Michael Shaoul, chairman and CEO of Marketfield Asset Management, also pointed out the central bank used the word "symmetric" to describe its inflation target. "We imagine that its use indicates a willingness to allow inflation to track higher than 2 percent for a period to compensate for the long time that it stayed below this level," he said.

Treasury yields initially rose before falling, with the 10-year note yield trading at 2.974 percent and the two-year yield below a near 10-year high.

"There's not that much to read into this," said Crit Thomas, global market strategist at Touchstone Investments. "The market continues to struggle with conflicting forces, including awesome earnings, higher rates and fears of a trade war."

In corporate news, Apple rose 4.4 percent after reporting better-than-expected quarterly earnings and revenue that surpassed market expectations.

Wall Street was eagerly awaiting for Apple's quarterly figures as the company is seen as a bellwether for the technology sector.

Earnings season continued Wednesday with CVS Health and Estee Lauder among the companies that reported earnings that beat analyst expectations. Garmin and Clorox also posted stronger-than-forecast results.

Overall, most major companies have reported quarterly earnings that outperform analyst estimates. According to FactSet, 79.1 percent of S&P 500 companies that have reported thus far have surpassed earnings expectations.

However, reactions to the earnings have been mixed, with some companies seeing their stock drop despite beating the Street.

"It seems a lot of good news has already been priced in," said Willie Delwiche, investment strategist at Baird. "We are now asking if we can continue to surpass that high bar that has been set."

In economic news, mortgage applications dropped 2.5 percent as rates reached their highest levels in nearly five years. ADP and Moody's Analytics also found that private payrolls grew by 204,000 in April, more than the expected 200,000.

—CNBC's Anita Balakrishnan and Jeff Cox contributed to this report.