Hopes for cooling inflation are being stifled by Wall Street’s expectations for a potential Trump 2.0 presidency.

As many investors and traders remain optimistic about the prospects of cooling U.S. inflation ahead of Thursday’s release of the June consumer price index, Wall Street is highlighting the potential inflationary impacts of a second term under Republican Donald Trump.

In the days leading up to the CPI report, two conflicting views are emerging about the future direction of U.S. inflation, complicating the Federal Reserve’s decision on the appropriate path for interest rates, which are currently at 23-year highs of 5.25% to 5.5%. Major U.S. stock indexes, including the DJIA, SPX, and COMP, closed mostly higher on Tuesday, with the S&P 500 and Nasdaq Composite reaching new record highs, despite a selloff in U.S. government debt that raised 10- and 30-year Treasury yields for the first time in five sessions.

One perspective is that inflation will likely continue to ease as U.S. economic growth slows, allowing the Federal Reserve to cut interest rates as soon as September. Economists expect the annual headline CPI inflation rate to fall to 3.1% in June from 3.3% in the previous month, with inflation traders anticipating a further drop towards 2% by May 2025.

The other viewpoint is that inflation could resurface if Trump is re-elected, due to his proposals on trade and immigration. Concerns about Trump 2.0 were reflected in a two-day rise in Treasury yields on June 28 and July 1, even with four months remaining before the election.

“For good reasons, traders link Trump’s policy agenda with inflation,” said Thierry Wizman, a global FX and rates strategist at Macquarie. “They see policy rates being higher than otherwise under Trump 2.0.”

Trump is leading President Joe Biden in polls almost two weeks after their June 27 televised debate, bringing attention to the Republican challenger’s proposals for 10% duties on all imports and a minimum of 60% tariffs on Chinese goods. However, Biden has also faced criticism for the surge in U.S. inflation that began in 2021 and peaked in 2022, following his Covid-relief plan that resulted in an additional $1.9 trillion of federal spending.