Fed's Fischer says labor market strong, Fed could overshoot goals

WASHINGTON (Reuters) - The U.S. labor market is close to full strength and the economy could at some point overshoot the Federal Reserve's goals for employment and inflation, Fed Vice Chairman Stanley Fischer said on Friday.

Fischer did not say whether the Fed was likely to raise interest rates in December but he noted that investors in financial markets were betting on a hike that month.

"The labor market has, by and large, had a pretty good year," Fischer said in prepared remarks for a conference at the International Monetary Fund, describing the jobs situation in America as "close to full employment."

U.S. employers added 161,000 jobs in October, data showed earlier on Friday, and Fischer said the economy probably only needs to create between 65,000 and 115,000 per month to maintain full employment.

Fischer has warned several times this year that higher inflation was bound to stir before long and on Friday he reiterated that he expected prices to rise more quickly.

More strikingly, he appeared to acknowledge the U.S. labor market could overheat and that inflation could exceed the Fed's 2 percent target although he did not say when the U.S. economy might exceed the Fed's objectives.

He said the long-run growth outlook was rather uncertain in part because economists do not understand why growth in average output per hour worked has stagnated.

A better understanding might develop if the labor market becomes tighter and inflation rises, he said, referring to a hypothesis that faster growth in demand might lead to an acceleration in productivity growth.

"It will be answered by the behavior of output and inflation as we approach and perhaps to some extent exceed our employment and inflation targets," Fischer said.

(Reporting by Jason Lange; Editing by Chizu Nomiyama)

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