The Federal Reserve's new data-focused stance on rate hikes will be face it first key test Friday as the Labor Department publishes its November jobs report that is likely to indicate slowing employment growth but potentially faster wage increases, adding to the broader uncertainty surrounding growth in the world's biggest economy.

Analysts estimate that U.S. employers created 200,000 new jobs last month, down from the 250,000 added in October and slightly below the 212,500 pace recorded over ten months so far this year. Average hourly wages, according to the consensus forecast, are expected to have risen by 3.1%, matching last month's tally, which was the fastest in nearly a decade. However, with Amazon Inc.s new $15 minimum wage limit kicking in last month, and labor market shortages around the nation potentially adding to hourly pay pressures, investors are preparing for a reading that indicates faster pay increases, which push up short term interest rates, and modest jobs growth, which holds down longer-term yields.

"So far, the undershooting jobless rate hasn't been a problem for the Fed, because wage growth has remained relatively subdued, merely in line with the sum of productivity growth and core inflation," said Ian Shepherdson on Pantheon Economics. "The danger now is that employees will seek to extract a scarcity premium from employers, safe in the knowledge that they are hard to replace. If that happens, the Fed will have to make some hard decisions next year."

In one respect, it could be argued that bond markets are positioned for that same difficulty: the slope of the so-called yield curve, a term that describes U.S. Treasury markets interest rates over a broad selection of terms, has reduced to the smallest levels since 2007, creating concerns of an "inversion", where short-term rates rise above longer-term rates.

That's a concern for both bond and stock investors because each of the nine recessions the U.S. has endured since 1955 have been preceded by an investors of the yield curve, making it the most accurate financial market predictor of economic -- and by definition equity market -- weakness.

Benchmark 10-year U.S. Treasury notes were seen at 2.876% during the early European trading session Friday, while 2-year notes were quoted at 2.752%, putting the slope of the yield curve at around 13 basis points, a touch steeper than the 9.5 basis point slope recorded earlier this week but worryingly flat heading into the jobs report.

Faster wages and slowing growth would also create a new headache for the Fed, which appeared to pivot last month on its hawkish 2019 rate stance to a more " data-dependent" approach as both the yield curve flattened and signals from the housing market suggested slowing economic growth.

Those comments, as well as signals from minutes of its November meeting, have reduced bets on 2019 rate hikes substantially, according to the CME Group's FedWatch tool, with investors only pricing in a 30% chance of a March rate hike and a 10% chance of a follow-up in June, down from 51.5% and 32.2% just a few weeks ago. Odds a December hike, though, the Fed's fourth of the year, are cemented at around 75%.

However, in brief remarks to a housing conference last night in Washington, Fed Chair Jerome Powell said the U.S. economy was "performing very well overall" and noted that "by many national-level measures (the job market) is very strong".

Hurricane Michael, which made landfall in October and reduced job additions in that month, could add to a bigger-than-expected rebound in the November reading. Redbook data, as well as all indications from Black Friday and Cyber Monday shopping activity, also suggest consumers are in a robust mood to spend, suggesting labor market confidence that could point to a higher-than-expected headline reading that would mitigate a faster-than-expected tally on wages.

"The strong economic momentum means there is little reason to expect a significant drop-off in demand for workers anytime soon and given the tightness of the jobs market this suggests further upside for wages," said ING's chief international economist James Knightley. "This will add to inflationary pressures in the US economy and ensure a December interest rate hike from the Fed. There will be more headwinds in 2019, but for now, we continue to predict three further 25bp interest rate increases next year."

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