Fitch Ratings warns that U.S. credit conditions are likely to deteriorate in the second quarter of 2025 due to rising tariffs, global trade tensions, and increasing policy unpredictability. The new round of tariffs introduced by the U.S. and the retaliatory measures from trade partners have surpassed Fitch’s earlier expectations, leading to downgraded GDP growth forecasts — now reduced by 0.5 percentage points for the U.S. and 0.4 percentage points globally. U.S. economic growth is now expected to slow to just 0.4% year-over-year by Q4 2025.

Higher import prices, worsened household inflation expectations, and reduced liquidity and funding availability — despite worsening growth prospects — are expected to strain the credit environment further. Fitch projects that the Federal Reserve will not lower interest rates before Q4 2025.

Key sectors like autos, tech hardware, and homebuilding are most vulnerable to tariffs, while gaming and tech companies face rising risks from foreign retaliation. Meanwhile, potential federal cuts to Medicaid could significantly harm credit in the healthcare sector.

Despite the challenges, most investment-grade companies maintain solid balance sheets and have extended their debt maturities due to recent favorable market conditions. However, Fitch cautions that the overall risks to corporate revenue and margins are increasingly skewed to the downside.

https://www.fitchratings.com/research/structured-finance/us-credit-trends-to-deteriorate-amid-tariffs-policy-volatility-17-04-2025