Although Friday's employment number may be a grand slam for the Bush administration, one organ of the federal government finds its game greatly complicated by the huge runup in payrolls: the Federal Reserve.

Stocks and the dollar have rallied since the Labor Department released the March employment report at 8:30 a.m. EST, as traders celebrated the arrival of jobs to an economic party that has raged elsewhere for months. The Dow has added about 95 points while the dollar gained about 1.7% against the euro.

But the situation in markets that are usually considered more sophisticated interpreters of economic news is different, with a pitched battle currently resolving in the direction of forces concerned about an imminent rate tightening.

If that side is right, and a rate increase is in the cards sooner than later, the Bush administration might want to re-cork its champagne -- at least until July, when the likelihood of Fed action plunges as the election nears.

Bond yields, for one, are skyrocketing, in part because of perceptions Friday's number means an end to the Fed's commitment to low interest rates. The 10-year bond was recently down 2 2/32 in price, pushing the yield up from 3.89% last night to a recent 4.13%.

John Lonski, senior economist at Moody's, thinks the fixed-income market could be the excuse the Federal Open Markets Committee needs to tighten. Lonski said that if 10-year yields rise to 4.5%, the Fed "can say 'We're just following what the market is telling us to do.' "

Other financial instruments also foresee a tightening. Futures on Eurodollar contracts, which historically have been a reliable indicator of the market's rate expectations, priced in a quarter-point rise in the fed funds rate by September immediately after Friday's number hit the tape.

Meanwhile, fed funds futures are pricing in a 50% chance the Fed will raise rates in June, compared with a 24% chance before the March employment report hit. Fed funds futures are pricing in a 100% chance of a quarter-point increase by August.

Fed funds futures are generally a good gauge of expectations, said Michael Englund, chief economist at Action Economics, although he said that there is "a risk premium" to the futures "in times of one-sided bets."

"We're now at the bottom of interest rate cycle," Englund said. "In times where we know which direction the funds rates are moving, usually the market will overstate that risk."

The Fed's chief concern will always be inflation, something that has shown signs of perking up in a handful of recent indictors. While February's producer price index was tame, other indicators have been troublesome.

"You've got the situation where the fed funds rate has been below 2% for two years now, real interest rates are negative, the commodity index is up 25% to 30%, and the dollar is down 25%," Joe Veranth, executive vice president of Dana Investment Advisors. "All of those are signs of a weaker dollar. A weaker dollar by definition means there's inflation in the system."

Veranth thinks the Fed will act independently of political pressure and he sees the potential for not one, but two Fed funds increases this year if economic data stay strong. The month of May could be too soon for an increase, he said, whereas June or August are more realistic.

"A tightening is really a reaffirmation by the Fed that we are in a strong recovery," said Veranth.

The Fed's biggest constraint is the coming presidential election. Historically, the Central Bank has tried to avoid perceptions it is meddling in domestic politics by keeping its powder dry in the second half of an election year. Is there enough pressure for the FOMC to act before then?

"The risk up to a June/July increase is trending higher," Englund said, pointing to next week's producer price index as a key indicator.

Lonski noted that the average growth rate for the first three months of 2004 was 175,000. Continuing that growth into April would virtually lock in higher rates by showing that job growth is sustainable.

Others see little chance of an imminent hike.

"This report clearly gives the Fed more flexibility than it had earlier in adjusting monetary policy," said Vincent Malanga, president of LaSalle Economics. "As the Fed itself said, it would require a lengthy period of large jobs increases to cause any change in policy. They would also need to see a change in inflation."

Jim Melcher, president of Belestra Capital, said the country's precarious financial situation is all the more reason the Fed won't hike in an election cycle.

"Household debt levels need to become more manageable," Melcher said. Consumers "can barely handle it even with rates this low."

To be sure, a Fed tightening does not guarantee a Bush defeat, though his chances for re-election weaken with the economy's. For now, the administration is content with any manifestation of economic improvement, particularly since its very absence is what doomed the president's father in the late days of 1992.

"George W. Bush is not fighting the same battle as his father," Englund said. "The timing is so much stronger and economy turned more quickly than it did for George H.W. Bush ," he said. "It's hard to make a pessimistic case for him. The economic data is encouraging for the present."