NEW YORK (Reuters) - In calmer times the U.S. employment report due to be published on Friday would be the Federal Reserve's best and last economic signal before it decides whether to raise interest rates later this month for the first time in nearly a decade.
But the world's financial markets have been anything but calm recently and, as such, have themselves become the primary determinant of whether U.S. central bankers tighten monetary policy on Sept. 17 for the first time since 2006.
According to Fed policymakers and other economists, employment and wage growth for August would likely need to be particularly strong for the Fed to act this month, while the sharp recent gyrations in stocks, bonds and currencies would need to dissipate.
"Because of the volatility, you'll need an even stronger report to get them to hike," said Thomas Costerg, senior economist at Standard Chartered Bank, in New York. "A middling report might not be enough if markets continue on like this."
Economists polled by Reuters expect the U.S. economy to have produced 220,000 new non-farm jobs last month, continuing the robust rate of employment creation of the past five years, while average hourly earnings are predicted to have risen by a modest 0.2 percent as they did in July.
Job growth closer to 300,000 would put pressure on the Fed to promptly raise interest rates, said Costerg, adding that wage pressures will be much more vital than usual to the much-anticipated September policy decision.
This is because Fed officials are concerned not with the resilience of the labor market but with the possibility that inflation, which has remained below a 2.0-percent target for a few years, will not rebound any time soon without wage rises.
However, in recent weeks fears that China's economic growth is slowing resulted in tumbling stock and commodity prices and sharp falls in emerging market currencies.
Slower economic growth in Asia, weaker commodity prices, and a U.S. dollar near its highest levels in a decade, could all keep U.S. consumer price inflation low and delay a return to more normal monetary policy by the Fed.
As investors and governments globally prepare for a Fed interest rate rise, futures market traders predict about a 30 percent chance the rise will come this month, down from more than a 50 percent probability before the volatility in world markets of the past month. Interest rates futures markets indicate a higher probability for a Fed move in October and December.
Fed policymakers gathered at a conference in Jackson Hole, Wyoming last week acknowledged that market volatility affects their decision on the timing of policy.
Even "hawkish" officials like St. Louis Fed President James Bullard said a move on interest rates is unlikely if markets remain turbulent through to the policy meeting.
Fed Vice Chair Stanley Fischer said there was "a pretty strong case" to tighten before the slump in stock prices led by China, and that now, "we are still watching how it unfolds."
While the U.S. central bank wants reasonable confidence that inflation will rebound in the medium term, data on the broader economy have remained healthy, with the Fed's own Beige Book reporting on Wednesday that labor markets were tight enough to fuel small wage rises across the country.
The U.S. Labor Department jobs report on Friday, which is expected to show unemployment has fallen to about 5.2 percent, may not clarify the Fed decision even if the data fails to meet expectations. Employment growth for the month of August in particular has a history of being initially underestimated and later revised higher.
Torsten Slok, chief international economist at Deutsche Bank Securities in New York, said a challenge for the Fed is "to prevent the labor market from overheating down the road," if it delays a liftoff in interest rates.
"I don't see any evidence that the economy is weak or that we are about to enter a recession," he wrote to clients. "Instead I see a labor market that is looking hotter and hotter."
Reporting by Jonathan Spicer; editing by Clive McKeef