Policy risks cloud U.S. credit outlook

Fitch Ratings has lowered around 25% of 2025 U.S. sector outlooks to ‘deteriorating’ in the midyear update amid increased uncertainty, slowing growth, and expectations for higher-for-longer interest rates. Although recession risk has declined following the easing of U.S.-China trade tensions, business and consumer confidence has weakened. Fitch has raised its 2025 U.S. GDP growth forecast to 1.5% from 1.2% but expects momentum to slow as the year progresses.

The tax and spending bill passed on July 4 underscores long-term challenges facing the U.S. fiscal outlook and will pressure healthcare-related sectors. The combination of this tax bill and the extension of earlier tax cuts is likely to keep general government deficits above 7% of GDP and push debt-to-GDP to 135% by 2029. Medicaid spending cuts and changes to ACA marketplace eligibility will weigh on healthcare providers and insurers, while other sectors may see only modest benefit from tax changes.

Funding and liquidity conditions were strained following the April tariff announcements but have stabilized as the implementation of steepest tariffs was postponed. The U.S. dollar has depreciated notably in 2025, while long-term sovereign bond yields remain elevated, signaling market concerns about long-term fiscal trends and tariff-related inflation outlook.

Rating performance was broadly stable in 2Q25, with investment-grade momentum weakening and sub-investment-grade downgrades outpacing upgrades, driven largely by company-specific developments. Fitch forecasts U.S. high-yield bond and leveraged loan default rates to rise to 4.0–4.5% and 5.5–6.0%, respectively, in 2025. Policy developments and sector-specific risks will remain key drivers of rating trends through the rest of the year.