“It is true that prices paid may not have the same impact as a CPI report, but it is worth noting that a similar increase occurred last January, just before some very strong US inflation data in the first quarter of 2024. And that in turn led to a big “reassessment of how quickly the Fed would cut rates, which is why we saw such a big market reaction yesterday,” Reid added.

Traders will be eager to see whether Wednesday’s data confirms this: ADP’s December private sector jobs report was released at 8:15 a.m. Eastern time, followed 15 minutes later by weekly initial jobless claims. The labor data set will be completed by the December nonfarm payrolls report on Friday.

According to the CME FedWatch tool, recent economic reports have helped reduce the likelihood of a 25 basis point rate cut by the Federal Reserve at its Jan. 29 meeting to just 4.8%. Further insight into the Fed’s thinking will be provided by the release of the December FOMC meeting minutes at 2 p.m.

“Market sentiment is set for a hawkish interpretation of today’s Fed minutes. We expect them to balance inflation and labor market risks and double down on their gradual approach to rate cuts. If we are right, this could ease the sell-off in the Treasury market somewhat,” said Kathleen Brooks, director of research at XTB.

The Treasury Department will announce the results of a $22 billion auction of 30-year bonds at 1 p.m