Fed remains cautious on cuts even as data improves

But that hasn't yet prompted policymakers to say anything concrete about when rates might fall, indicating as did Fed Chair Jerome Powell earlier in the week that while the baseline outlook remained for to fall, they didn't trust it fully after three months in which inflation data disappointed.

"I don't see any indicators now telling me ... there's a reason to change the stance of now," Williams said in an interview with Reuters, adding that he did not expect the case for a rate cut to fall into place "in the very near term."

In comments on CNBC on Thursday, President Thomas Barkin said the April retail sales number still means spending was growing at a "good" pace even if not a "great" one, noting that firms particularly in the service sector tell him they continue to plan price increases.

"I do believe we are on the right path. I do believe inflation is coming down," Barkin said.

But "to get to 2% sustainably it is going to take a little bit more time," he said, with more of the "edge" coming off of consumer demand, and businesses on the services side of the economy getting the message, as many in the goods sector have received, that customers will stop buying if prices get too high.

"Customers and competitors are going to have to teach people that they don't have pricing power," Barkin said.

President Loretta Mester said she still regarded progress on inflation this year as "disappointing" and, pointing to a recent rise in public expectations about near-term inflation, added that if long-term expectations also begin to increase the Fed may need to be open to further rate increases.

Holding the at the 5.25% to 5.5% range where it has been since July "is prudent...as we gain clarity about the path of inflation," Mester said. "Should developments in inflation and inflation expectations warrant it, policymakers will need to be open to tightening policy further." Like other policymakers, however, Mester said that was not her base case, and the April report was the first in four months that arguably boosted policymakers' faith that the drop in inflation seen last year might resume and become steady enough to bring their 2% within reach.

Chicago Fed President Austan Goolsbee said in particular that slowed shelter inflation in April left him "optimistic" the pace of price increases will continue to drop.

Atlanta Fed president Raphael Bostic, in comments Thursday at an event in Jacksonville, agreed the April easing of shelter inflation was "a pretty significant development."

But he added, in a note of caution, that "one data point is not a trend. One change does not determine...the next three months."

Indeed, the flow of data between now and the Fed's upcoming meetings leaves officials with a narrow window to build the case for a rate cut before the central bank's September 17-18 meeting - the current betting favorite among investors in contracts tied to the Fed's policy rate.

Between now and the Fed's June 11-12 meeting, policymakers will receive just one additional report on the Personal Consumption Expenditures price index, the statistic used to set the 2% inflation target. The rose at a 2.7% annual rate as of March, and, with many of the components of the April release already in hand, analysts expect little if any change when the new data is published on May 31.

By their July 30-31 meeting, however, officials will have received a full suite of data about the economy's performance through the first half of the year, including inflation and job reports through June, and a report on and employment costs for the second quarter of the year.

If data continues to show inflation declining, that could allow policymakers to amend what has been a standing reference in their policy statement to "elevated" inflation, a change analysts say will be needed to open the door to rate cuts.

The July meeting will be followed in August by the Fed's annual research conference in Jackson Hole, a forum Fed chairs have often used to shape public expectations about monetary policy.

In a sign of the primacy inflation still holds in the global policy debate, however, the International Monetary Fund on Thursday cautioned the Fed not to move too soon.

"The recent inflation data are overall higher than we would like to see," said IMF spokesperson Julie Kozack. "This reinforces the need for the Fed to be cautious."