May 10 (Reuters) - U.S. Treasury yields rose on Friday as traders waited on key inflation data for April next week to guide expectations of Federal Reserve policy.

Yields hit one-month lows last week after a softer-than-expected employment report for April re-ignited bets that the U.S. central bank will make two 25 basis point interest rate cuts this year.

Now, traders will need to see further progress on inflation easing closer to the Fed’s 2% annual target to solidify those rate cut expectations.

Further declines in inflation “could certainly get the ball rolling on rate cuts,” said Tom di Galoma, managing director and co-head of global rates trading at BTIG.

The Fed last week signaled it is still leaning towards eventual reductions in borrowing costs, but noted that recent disappointing inflation readings could make those rate cuts a while in coming.

Debate over whether U.S. interest rates are high enough deepened among Fed officials this week.

The closely watched core Consumer Price Index (CPI) on Wednesday is expected to rise 0.3% in April, for an annual gain of 3.6%, according to economists polled by Reuters.

Will Compernolle, a macro strategist at FHN Financial, sees the outcome of the inflation report as asymmetric.

“If it is bad, it probably will determine the year because the Fed has to seriously consider whether they are sufficiently restrictive at this point,” while inflation coming in as expected would be positive for the Fed but “doesn’t mean that we’re in the clear.”

“If it’s bad I think there are much bigger implications than if it’s a much more encouraging report,” Compernolle said.

A survey on Friday showed that U.S. consumer sentiment sagged to a six-month low in May amid growing anxiety about inflation.

Benchmark 10-year note yields rose 6 basis points to 4.504%.

Two-year yields gained 6 basis points to 4.868%.

The inversion in the yield curve between two-year and 10-year notes was little changed on the day at minus 36 basis points.

Other U.S. data next week will include producer prices for April on Tuesday and retail sales for April on Wednesday.

(Reporting By Karen Brettell; editing by Christina Fincher and Diane Craft)