NEW YORK, Jan 14 (Reuters) - U.S. Treasury yields were higher on Friday in choppy trade as a batch of soft economic data on consumer and manufacturing activity was seen as not enough to derail the Federal Reserve's path of tightening policy.

Yields headed lower after the Commerce Department said retail sales dropped 1.9% in December after a 0.2% rise in the prior month, well short of the unchanged forecast, as Americans grappled with a sharp climb in COVID-19 cases and a shortage of goods.

However, other data on import prices fell last month in part due to a decline in the cost of petroleum products, hinting that the worst of high inflation could be at an end.

Yields reversed course, however, and moved higher after the Fed said manufacturing output dropped 0.3% in December, shy of the estimate calling for a 0.5% rise.

The softer data was likely not enough to significantly alter expectations for the Fed's policy path, with expectations for an interest rate hike of at least 25 basis points at the March meeting nearing 90%, according to Refintiv data.

"Most of the Fed governors and people that sit on the board seem to be pretty emphatic about raising rates at least three, if not four, times this year," said Tom di Galoma, managing director at Seaport Global Holdings in New York.

"I don’t know how they step away from that just because we got a weak retail sales number."

Di Galoma noted that with the 10-year yield moving to levels not seen since January 2020 at 1.808% last week, it had encouraged buyers to step in this week.

The yield on 10-year Treasury notes was up 6.4 basis points at 1.773%. After rising about 25 basis points last week, the 10-year yield is just barely higher for the week.

Fed officials on Friday continued to comment on the need to tighten policy as New York Fed President John Williams said it is "sensible" for the central bank to begin raising rates this year and that policymakers will not wait as long as they have in the past to begin reducing its bond holdings.

San Francisco Federal Reserve Bank President Mary Daly put the main blame for high inflation on COVID-19, and said the Fed needs to raise rates to dampen demand.

The yield on the 10-year continued its move higher following the University of Michigan's preliminary Consumer Sentiment reading for January, which dipped to 68.8 from December's final reading of 70.6. One-year inflation expectations ticked up to 4.9% from the prior 4.8%.

The yield on the 30-year Treasury bond was up 6.1 basis points at 2.115%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 80.5 basis points from a low of 79.9 on Thursday.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 6.8 basis points at 0.967% after 0.971%, its highest since February 28, 2020.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.832%, after closing at 2.817% on Thursday.

The 10-year TIPS breakeven rate was last at 2.477%, indicating the market sees inflation averaging about 2.5% a year for the next decade.

The U.S. dollar 5 years forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.374%. (Reporting by Chuck Mikolajczak Editing by Marguerita Choy and Jonathan Oatis)