NEW YORK - U.S. Treasury yields were modestly lower on Friday as the market sought direction on the Federal Reserve's tightening path amid economic data pointing to lower inflation expectations and resilient consumer sales.

Stubbornly high inflation data this week sparked concerns the central bank may increase rates by a supersized 100 basis points, but both Fed Governors Christopher Waller and St. Louis Fed President James Bullard said on Thursday they supported another 75 basis points rate increase at July's Federal Open Market Committee (FOMC) policy meeting.

On Friday, Atlanta Fed President Raphael Bostic said moving interest rates "too dramatically" could undermine the positive trends still seen in the economy, while Bullard said the central bank would need to move expeditiously to quash inflation. "There's a real battle going on right now for how the Fed is going to approach this situation; they've got a really serious problem here," said Dean Smith, chief strategist at FolioBeyond. "That's what's causing wild swings in rates," he said.

Yields on the 10-year benchmark U.S. government bonds went down to 2.918% on Friday from 2.959% on Thursday, while yields on two-year debt, which are more sensitive to rate expectations, declined to 3.113% on Friday from 3.145%.

U.S. consumers tempered their inflation expectations in July, a potential signal the Fed's policy tightening is helping to prevent expectations for high inflation from becoming embedded.

The two-year Treasury yield dropped after the University of Michigan's preliminary survey of consumers for July showed consumers see inflation running at 2.8% over a five-year horizon, the lowest in a year and down from 3.1% in June.

Concerns that the Fed may have to accelerate monetary policy tightening to fight inflation, however, continued to linger. While traders have priced in a 75 basis points rate hike at the Fed policy meeting scheduled for July 26-27, odds of a 100 basis points rate hike have grown recently.

"There's a big gap between the July FOMC meeting and the next meeting, which is in September," said Jonathan Duensing, head of fixed income, U.S. and portfolio manager at Amundi U.S. "So there's a lot of data and I feel there's plenty of cover for the Fed and (Fed Chair) Powell to say, this is how committed we are to getting ourselves to at a minimum neutral, because 100 basis points really just puts them in the middle of what they regard as the neutral rate range of 2% to 3%," he said.

Commerce Department data on Friday showed that U.S. retail sales increased more than expected in June, but for Capital Economics, when taking into account higher prices, real consumption remained stagnant.

"That’s unlikely to be enough to convince the Fed to step up the pace of tightening to 100bp at the meeting this month. ... But it does provide further reassurance that the economy isn’t plunging into recession," it said in a note.

A closely watched part of the curve, measuring the spread between yields on two- and 10-year Treasury notes , extended its inversion moderately on Friday to 19.9 basis points from 17.5 basis points. The inversion of that part of the curve, widely seen as a precursor of a recession, earlier this week expanded to as much as 27.6 basis points, the most since September 2000.

(Reporting by Davide Barbuscia; editing by Jonathan Oatis)