Traders and investors will be paying close attention to the US monthly jobs report to be released on Friday, particularly for what it implies for Federal Reserve policy and for the economy's ability to withstand economic weakness abroad.

In confirming a continued improvement in the labour market, the data will probably signal a green light for an orderly summer rate hike; but it will not resolve the longer term policy challenges facing the Fed, markets and the economy as whole.

Consensus is looking for the US to have created an additional 162,000 jobs in May. While this is the number that will attract the most headlines, it is far from the only important insight in the report. Two indicators pertaining to earnings and labour participation are equally important.

Market slack

The first, measured by the combination of hourly wages and hours worked, is likely to suggest that the majority of the US working age population is doing somewhat better in terms of purchasing power.

The second, which documents a frustratingly sluggish return of discouraged workers to the labour force, will probably signal the continued elimination of significant labour market slack.

In its entirety, the employment report will be supportive of the growing consensus within the Fed to hike interest rates in the next few months. Already, markets have been busy adjusting their own expectations.

Over the last three weeks, the implied probability of a 2016 rate hike has surged. Indeed, you need only look at the yield on the 2-year US Treasury, a maturity that is sensitive to rate expectations. It has widened from 70 basis points to around 90 basis points. Equally notable, this has occurred in the context of rather orderly equity markets notwithstanding the appreciation of the dollar.

This speaks to the likelihood that markets are now better placed to handle a Fed rate hike, only the second in 10 years.

Timing

Indeed, were it not for the uncertainty posed by the June 23 referendum on Britain’s membership of the EU, there would be a significantly high probability of the action being announced when the Federal Open Market Committee meets in two weeks.

Instead, the policy action is likely to be implemented in July (though June is still a possibility, especially if a lower Brexit probability accompanies a Friday jobs report combining solid job creation, higher earnings wages and a relatively stable participation rate).

As important as the timing of the next rate hike, if not more, is how the Fed communicates the what/how/why of what comes thereafter. Here expect the Fed to continue to signal what will go down in history as the “loosest tightening” in the central bank’s history - that is to say, a gradual path of higher rates, stop-go implementation, and a termination point of 2 - 2 ½ per cent, or well below historic averages.

If the analysis were to stop here, investors would be right to derive considerable comfort from prospects for continued economic healing, orderly monetary policy normalisation and low risk of policy mistakes and/or market accidents.

But the broader context is unusually fluid and complex - from growing anti-establishment movements on both sides of the Atlantic complicating economic governance to worsening inequality and negative nominal interest rates in Europe and Japan eating away at the good functioning of market-based systems.

Policy

When judged in terms of the longer term wellbeing of the economy and markets, a big policy transition is much more important than whether Friday’s jobs report enables a summer rate hike that markets would handle smoothly.

But this (highly needed and delayed) transition – from excessive reliance on unconventional monetary policy to a more holistic approach encompassing pro-growth structural reforms, responsive fiscal management, eliminating pockets of crushing over-indebtedness and improving global policy co-ordination – is unlikely to occur anytime soon.

While opening the door wider for the next step of an orderly Fed policy normalisation, Friday’s jobs report is unlikely to advance more than marginally the bigger quest for high and sustainable inclusive growth.

As such, market valuations will continue to be sensitive over the longer term to exceptional central bank support - this at a time when the Fed is less willing and other systemically important central banks (in China, Europe and Japan) are getting less effective in providing such support.

Mohamed El-Erian is chief economic adviser to Allianz and author of the book "The Only Game in Town"

– Copyright The Financial Times Limited 2016