* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr MILAN, June 17 (Reuters) - Euro zone government bond yields jumped and spreads widened on Thursday as a Fed policy meeting was more hawkish than expected, bringing forward the first projected U.S. rates increase. Thirteen out of 18 policymakers foresaw a “liftoff” in borrowing costs in 2023 instead of 2024, with 11 of them seeing two increases of 25 basis points. Seven officials see rates moving higher next year, opening the possibility of even more aggressive action. Fed Chair Jerome Powell said there had also been initial discussions about when to pull back on the Fed’s bond purchases. This conversation would be completed in the coming months as the economy continues to recover. “For the remainder of the day, no fundamental impulses are scheduled that could give the market a new direction,” Commerzbank analysts told clients. “When the U.S. market re-opens, it should become clear if the market is still trading out of a short base, with market participants using the back-up in yields to square positions,” they added. “More likely, however, the Fed and inflation backdrop should encourage more shorts.” Germany’s 10-year government bond yield, the benchmark of the bloc, fell 2.5 basis points to -0.17% by 0728 GMT, after briefly hitting their highest since May 25 at -0.149%. Fed’s projections showed that U.S. inflation is now on track to exceed the Fed’s 2% target by a wide margin of 3.5% this year and remains slightly elevated for the next two years. According to Deutsche Bank analysts, “if 0 was that you thought current U.S. inflation was totally transitory and that 100 meant that we were likely to see very high inflation, then before last night’s FOMC the Fed seemed to be at around a 5.” After the meeting it is “somewhere between 10-20,” they said, adding Fed’s position “makes more sense now.” Periphery’s bond prices -- which move inversely with yields – are underperforming core-bonds as they have benefited most from the ultra-accommodative monetary policy to avoid the adverse economic impact of the pandemic. Italy’s 10-year government bond yields were down 3.5 basis points to 0.81, with the closely watched spread with German yield up 3.5 bps to 98.3. (Reporting by Stefano Rebaudo Editing by Raissa Kasolowsky) Our Standards: The Thomson Reuters Trust Principles.