The debate over how far the Federal Reserve will cut interest rates is sharpening as a backlog of key U.S. economic data finally comes into focus. Delayed employment and inflation reports, followed by fresh jobs data early in the year, are expected to clarify whether the Fed is nearing the end of its easing cycle or will need to cut more aggressively. 

Bond traders are betting on two rate cuts next year, more than the Fed currently signals, fueling optimism that Treasuries could extend a rally already shaping up as their strongest since 2020. 

The labor market sits at the center of the outlook, with upcoming jobs data seen as the most important input for determining the path of rates. Yield curves reflect this uncertainty, as shorter-term yields have fallen while longer-term rates remain elevated, widening the spread between the two. 

Finsum: If the Fed pauses amid sticky inflation, Treasury returns may rely more on coupon income than price gains, keeping the market range-bound despite elevated expectations.