Fed policymakers increase drumbeat on possible December hike

By Lindsay Dunsmuir and Howard Schneider

(Reuters) - Two U.S. central bank policymakers on Friday hailed surprisingly strong monthly jobs figures, which have cemented the view that the Federal Reserve is likely to raise rates in December.

Nonfarm payrolls surged 271,000 in October, the largest rise since December 2014.

In separate appearances, both St. Louis Fed President James Bullard and Chicago Fed President Charles Evans said the jobs numbers were very good.

"We've indicated that conditions look like they could be right for an increase," Evans said in an interview with CNBC. "The real side of the economy is looking a lot better."

Evans, a voter on Fed policy this year under its rotating system, has long advocated for an initial rate hike in 2016 but softened his stance in October when he said adhering to a gradual rate path was more important than the timing of liftoff.

Bullard, who takes a more bullish view of the U.S. economy and pushed for a rate hike when the Fed met in September, said the economy was effectively at full employment.

"We are doing about as good as we could ever do," Bullard said in St. Louis.

He said his economic models see a "very hot" economy that will push the jobless rate as low as four percent. U.S. inflation will hit the Fed's 2-percent target by the end of next year, and is likely to exceed it for a time, Bullard added.

Their comments follow encouraging words by Fed chair Janet Yellen and other Fed officials this week, who all stressed that a rate hike at their next meeting on Dec. 15-16 is a distinct possibility.

On Friday, investors raised bets the Fed would lift rates next month, with futures markets implying a 72 percent chance of liftoff, up from 58 percent a day earlier.

It appears that attention at the Fed is increasingly turning to the pace of rate increases.

On this, Evans cautioned he still wants to see greater wage gains and said rates should rise slowly in order not to stifle an economy still struggling with low inflation.

"I really think that's where more of the uncertainty lies in terms of policy implications," Evans said, adding his preference for more delay or a shallower path reflected his "uncertainty over the fact that inflation will get back to our 2-percent objective over a reasonable period of time."

Bullard said the Fed still faced a "healthy debate" on the pace of rate rises and noted that although the Fed was unanimous in going slow, the meaning of gradual differs in practice.

"Once you make the second move you can get some credibility about what gradual means," he said.

(Reporting by Lindsay Dunsmuir in Washington and Howard Schneider in St. Louis; Editing by Chizu Nomiyama and Andrea Ricci)