(Reuters) - Federal Reserve policymakers waiting to see renewed progress on inflation before reducing borrowing costs got some encouraging data on Wednesday with a government report showing inflation eased a bit in April.    The 3.4% rise in the consumer price index from a year earlier, and the 0.3% increase from March, shows the Fed still has some distance to go before it achieves its 2% target for inflation.

But the report broke a three-month streak of hotter-than-expected readings that had sapped Fed policymaker confidence in a narrative of steadily easing price pressures. An increasing number of them had warned in recent weeks that rates would need to stay high for longer.

Particularly heartening in Wednesday's report, analysts said, was a slight easing in shelter inflation that policymakers have long expected but had been disappointingly slow to show up in the data. Rent prices rose 0.35% from a month earlier, their slowest pace since 2021, the report showed.

Core CPI, which strips out energy and food prices and is seen as a better gauge of underlying price pressures, rose 3.6%, its slowest in three years.

Analysts crunching the numbers said the CPI data suggests the Fed's preferred inflation gauge, the personal consumption expenditures price index, likely also eased in April.

JP Morgan chief economist Michael Feroli estimated the core PCE gained 2.7% last month from a year earlier, down from 2.8% in March.

The inflation readings are "firmer than the Fed's inflation goals, but at least are moving in the right direction again after the backsliding seen over the prior few months," Feroli wrote.

A separate government report showed previously fast-rising retail sales were unchanged in April compared to March.

After the data traders firmed up bets on Fed rate cuts in both September and December, with rate-futures contracts pricing pointing to a year-end policy rate of 4.75%-5%, down from the current range of 5.25%-5.5%.

An early start to rate cuts remained a long shot, based on rate-futures contracts, with pricing reflecting only slightly more than a one-in-four chance of a July rate cut.

Fed Chair Jerome Powell on Tuesday signaled the Fed may need to defer rate cuts until farther into the year to ensure inflation is headed back down to the Fed's 2% goal, but also said he thinks a rate hike at this point is unlikely.

"If there were concerns that they weren't going to cut at all, this just alleviated some of those concerns," said Jason Price, chief of investment strategy and research at Glenmede. "What it doesn't do is put the Fed on a trajectory to begin cutting immediately. They're going to need a couple more reports to get some confidence."