The potential for inflationary pressures to flare-up from Trump administration policy plans could hamper the Federal Reserve’s flagging of future rate cuts, Interactive Brokers' (IBKR) top strategist said.

Stocks (SP500)(COMP:IND)(DJI) jumped Wednesday after Republicans won control of the White House and the Senate in Tuesday’s federal elections. Treasury yields (US10Y)(US2Y), meanwhile, soared as bond prices slid. The moves took place before the Federal Open Market Committee was expected to continue cutting interest rates on Thursday.

The “fly in the ointment is interest rates,” IBKR’s Chief Strategist Steve Sosnick said in a note Wednesday.

Bank stocks (KBE) (KRE) on Wednesday jumped as the yield curve steepened and investors anticipated a loosening of government regulations, but the rate-sensitive Utilities (XLU) and Real Estate (XLRE) sectors were “not enjoying the 10bp-20bp rise in rates,” Sosnick said.

The benchmark 10-year Treasury yield (US10Y) spiked up as much as 19 basis points to 4.47% before paring back to 4.44%. Bond yields have been climbing in recent weeks, with traders determining that U.S. debt and deficits will rise under a new White House administration.

“Bond vigilantes seem to be fretting that a combination of lower tax rates and increased tariffs will poke holes in the budget that will need to be filled by higher Treasury issuance,” Sosnick said. President-elect Donald Trump has called for U.S. tariffs on goods imported worldwide.

“Also, there are concerns that deporting millions of low-wage workers could raise wages – which is good for the blue-collar voters who opted to vote red – but create renewed inflationary pressures,” Sosnick said. A Trump spokeswoman told Fox News on Wednesday the incoming administration plans to launch “the largest mass deportation operation of illegal immigrants,” upon entering government.

“It is difficult to expect [Fed policymakers] to deviate from the 25bp cut that the market expects, but their confidence in signaling future cuts might wane,” Sosnick said, adding that a “lack of clarity” could push yields higher.

“Bearing in mind that higher rates reduce the present value of future cash flows, increase costs to corporate and individual borrowers alike, and provide competition for equities, the future path for stocks is heavily dependent upon the outlook for bonds,” he said.

In equities Wednesday, the S&P 500 (SP500)(SPY)(VOO), the Nasdaq Composite (COMP:IND) and the Dow Jones Industrial Average (DJI) ended at record highs.

Here are a few ETFs tracking Treasurys: (IEF), (TLT), (SHY), and (SGOV).

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