Feb 10 (Reuters) - Pressure increased on the Federal Reserve on Thursday to take a stronger stand against inflation after an unexpectedly large jump in U.S. consumer prices defied hopes that the pocketbook squeeze would ease and bolstered the view that the U.S. central bank is behind the curve.

In the hours after a government report showed consumer prices rose at their fastest pace since the early 1980s, traders piled into previously improbable bets that the Fed will start its coming round of rate hikes with a "big bang" 50 basis-point rate hike. One Fed policymaker who just last week said such a move was unnecessary said he had changed his mind. The yield on two-year Treasuries rose the most since June 5, 2009.

The massive market shift and St. Louis Fed President James Bullard's embrace of a full percentage point's worth of rate hikes over the next four months suggests an internal Fed debate over how fast and high to raise interest rates will only intensify ahead of the next rate-decision meeting on March 15-16.

Until this moment, Fed policymakers had largely resisted the idea of a half-point hike, which they have not used since May 2000 and not at the outset of a rate-hike cycle since probably the 1980s, before the Fed's rate hike decisions were published.

"I don't think there's any compelling case to start with a 50 basis-point" rate increase, Cleveland Fed President Loretta Mester, often among the Fed's more hawkish voices, said on Wednesday. Interest-rate futures were pricing in about a one-in-four chance of that happening.

Fast forward a day, and the latest U.S. inflation reading tipped that on its head. Household prices were up 7.5% in the 12 months through January, the Labor Department reported.

Market participants began pricing a hefty chance of a half-percentage-point rate hike in March. Then Bullard - who last week agreed with Mester - told Bloomberg News he had become "dramatically" more hawkish.

That sealed the deal for markets. At day's end rate futures were pricing in a half-point rate hike in March with just a scant chance of a smaller quarter-point hike, and heavy bets for a policy path that would bring rates to a range of 1.75%-2.00% by the end of the year.

Fed policymakers had already flagged that they will begin raising the central bank's benchmark overnight interest rate from near zero at the March meeting, just days after they stop their two-year spree of buying billions in government bonds each month. It began the bond purchases to keep financial conditions loose and spur borrowing amid the COVID-19 pandemic.

By many measures they are already late to the party, with inflation at its highest level in 40 years and a super-tight labor market at odds with a Fed only just getting ready to remove crisis-era policy support.

"All this logically supports a 50 basis-point move in March," said Karim Basta, chief economist at III Capital Management. "Whether the Fed ditches its gradualist approach remains the most relevant question."

To Mark Cabana, head of U.S. interest rates strategy at Bank of America Global Research, the case is only getting stronger.

"Are you going to tell the market that it's wrong and you need to go slower?" Cabana said. "If the market gives the Fed the option, we do not believe that the Fed will tell the market that it's wrong."

Economists at Deutsche Bank on Thursday said they now think the Fed will kick off its policy tightening with a 50 basis-point hike next month.

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By: Ann Saphir and Lindsay Dunsmuir