Wall Street believes the Federal Reserve may not cut interest rates as much as markets had expected if new President Donald Trump raises tariffs as sharply as he has suggested.

High tariffs would increase the cost of imported goods and could potentially spur inflation in the United States given Americans’ reliance on foreign-made goods such as clothing, consumer electronics and automobiles.

“Fears that higher tariffs will increase inflation have prompted markets to anticipate some rate cuts from the Fed next year,” said Seema Shah, chief global strategist at Principal Asset Management.

However, it is not yet clear how far Trump will go. Although he raised tariffs during his first term, he did not raise them as high as he had threatened. He also reduced tariffs after negotiations with China.

Higher tariffs did not have much effect on inflation during his first term. Overall, prices increased slowly from 2017 to 2020.