The Federal Reserve is likely to deliver at least two more interest-rate hikes, taking the benchmark rate to above 5%, before monetary policy will be sufficiently restrictive to bridle an unexpectedly strong labor market that is contributing to high inflation.

That was the read from traders of interest-rate futures on Friday after the U.S. Labor Department reported employers added more than half a million jobs last month, far more than expected. Prices in those contracts fell sharply, and now reflect a better than even chance that the Fed will keep raising interest rates to the 5%-5.25% range by June, if not by May.

The Fed earlier this week increased the rate by a quarter-of-a-percentage-point to 4.5%-4.75%, and said it expects to deliver "ongoing" increases. Financial markets though heard a more dovish message and had been betting there would be just one more rate hike in the offing, in March, before a pause.

"Futures are finally waking up to the reality of just how dire the situation could be in terms of the Fed having to really continue to push rates up, said Brandon Pizzurro, director of public investments at Guidestone Capital Management.

Traders still expect the Fed to cut rates later in the year, despite Fed Chair Jerome Powell saying he does not expect inflation to fall fast enough to allow such a thing.

(Reporting by Ann Saphir with reporting by Ankika Biswas Editiing by Raissa Kasolowsky and Chizu Nomiyama)