NEW YORK, Nov 7 (Reuters) – A sudden improvement in the U.S. employment picture on Friday sent some economists scrambling to revise their views on when the Federal Reserve will raise interest rates, but others counseled patience.

Just a day after Fed Chairman Alan Greenspan expressed hope the labor market would start to improve, the October payrolls report showed a 126,000 gain, more than double analysts’ forecasts. Dramatic revisions to previous data showed three consecutive months of gains.

Jobs growth had been the missing element in an otherwise robust recovery but economists are gaining conviction that all the pieces of the puzzle are now falling into place.

Some now wonder how much longer the Fed will consider its benchmark rate, at a 45-year low of 1.0 percent, appropriate, even with low inflation.

“We are looking, all of a sudden, at a different pattern of labor market growth,” said Anthony Karydakis, senior financial economist at Banc One in Chicago.

“We now think the beginning of the tightening process is more likely to be in the second quarter rather than the third quarter” next year, he said.

Financial futures markets ramped up the odds of a rate hike by the end of April after Friday’s report, with the fed funds contract showing a 90 percent chance of a 25 basis point rise, up from 70 percent on Thursday. For May, a rate rise is fully priced in.

WATCHING AND WAITING

The futures market has been well ahead of economists’ expectations for the turn in the rate cycle for months, paying less attention to the Fed’s promises to keep monetary policy easy because inflation is so low.

Even after Friday’s jobs report, analysts warn the Fed will want to be sure this is not another false start, like similar short-lived bursts of activity over the past two years.

“This is a good start, but we’re still a long way from where they’d like to see the labor market. So I think they’ll remain patient,” said Kevin Logan, senior economist at Dresdner Kleinwort Wasserstein.

He said the Fed will want to see prolonged gains and it would be “months and months” before they see any need to change policy.

Some shift in the language of the Fed’s statements, perhaps backing away from the promise to keep rates low “for a considerable period,” is seen likely in the next month or two.

The central bank has put especial emphasis on jobs in recent days in judging the strength of recovery. Greenspan on Thursday warned that if the labor market stays weak, household spending could suffer but said the odds favored a “revival” in job creation.

Fed Governor Ben Bernanke on Thursday gave several possible explanations for the lack of job growth but concluded it should pick up in the next quarter or two.

He said the economy needs to add 150,000 jobs a month just to keep the jobless rate steady, because of population growth.

“If we see several months of this type of job growth, policymakers are likely to decide that we don’t need the level of stimulus that we currently have,” said Gary Thayer, chief economist at AG Edwards.