While data on Friday supported the Fed's view that the labor market is near full strength, concerns remain over how America's consumer-driven economy will weather the weakness across Asia and Europe as well as a commodity-market bust that threatens a host of developing economies.

"All of that will affect our economy (and) we'll need our domestic strength to continue to push through it," Jason Furman, the White House chief economist, told network CNBC after the U.S. Labor Department released monthly data on U.S. employment.

That report showed the unemployment rate dropped to an eight-year low in January at 4.9 percent while the $0.12 gain in hourly earnings was the largest in a year. At the same time, the overall pace of hiring slowed to 151,000 from 262,000 in December.

The Fed will see one more employment report before its next policy meeting on March 15-16 and CME Fed funds futures contract prices imply investors see a mere 14 percent chance of a rate hike then, up slightly from 12 percent a day earlier. Investors expect only one rate increase this year, in December, rather than the four signaled by policymakers at the end of 2015.

When the Fed began raising interest rates in December its message was clear: it wanted to keep monetary conditions loose and felt the United States still needed accommodation to keep a modest economic recovery underway.

Now markets seem to have taken matters into their own hands and a range of financial and survey data show borrowing money has become more difficult for big and small businesses across the country, a reflection of heightened risk aversion following a sell-off in global stock and commodity markets and concerns about an overall economic slowdown.

It matters to the Fed how long this goes on and what effect it has on the real economy.

Already a slowdown in global demand has undercut stock prices and led to widening credit spreads and tighter borrowing conditions beyond the hard-hit energy sector and policymakers have said this could sideline their rate hike plans.

"That tightening has got to be taken into account because it has some effect on underlying economic conditions," Dallas Fed President Robert Kaplan said in a recent interview with Reuters where he said the Fed needed time to weigh whether global financial turmoil could knock the U.S. economy off track.

The current pace of U.S. job growth is still higher than the roughly 80,000 jobs the Fed estimates are needed per month to keep up with population growth, indicating that from the Fed's perspective the labor market continues to grow tighter.

The issue facing the central bank is how long that will continue. A recent Reuters analysis showed companies across the economy plan to cut back on capital spending this year, a potential drag on growth, jobs and income.

MISSING THE CYCLE?

"The Fed may well have missed the business cycle entirely ... The financial cycle seems to have turned as well," former Fed governor Kevin Warsh said of the central bank's decision to begin raising rates in December, after seven years near zero. "The economy has chronically underperformed what they predicted."

In a statement from its January policy meeting, the Fed said that monetary policy "remains accommodative," and that the economy would therefore "expand at a moderate pace and labor market indicators will continue to strengthen."

But Fed officials who said their quarter point hike in the Fed funds rate would have little impact on lending and credit must now assess what markets are doing on their own.

Banks tightened standards for U.S. commercial and industrial loans between October and December for the second straight quarter, the longest stretch of tightening since late 2009 in the first months after the recession, according to the Fed's Senior Loan Officer Opinion Survey released on Monday.

Investors also tightened the spigot for investment-grade U.S. corporations as well, according to the Bank of America Merrill Lynch U.S. Corporate Index.

Demand by medium and large companies for commercial and industrial loans fell in the fourth quarter for the first time since 2012, according to Fed data, which could signal slumping expectations for future sales.

Loan demand also slumped ahead of America's last two recessions and some Wall Street analysts worry fewer loan applications and a slight increase in the pace of layoffs point to companies bracing for another downturn.

"Judging by recent market action and what’s happening in many economies around the world, it is an appropriate time to take recession risks seriously," Credit Suisse said in a note to clients.

(Reporting by Howard Schneider and Jason Lange in Washington; Additional reporting by Hillary Flynn in New York; Editing by Chizu Nomiyama and Clive McKeef)

By Howard Schneider and Jason Lange