U.S. credit trends are likely to deteriorate in 2Q25 as the outlook for trade, economic growth and inflation worsens amid the escalating trade war and continued policy volatility, says Fitch Ratings in a new report.

The latest U.S. tariff announcements and retaliation by trade partners sharply exceeded the already steep rises Fitch previously assumed, prompting a special update to lower U.S. and global growth forecasts by 0.5pp and 0.4pp, respectively. We expect U.S. annual growth in 2025 to slow significantly through the year to just 0.4% y-o-y in 4Q25. Other large policy changes are under way, including cuts to federal government spending and operations and tightening immigration policy, each with potential credit implications.

Fitch expects the Federal Reserve to wait until 4Q25 before cutting rates. Import prices are set to rise sharply and there has been an alarming jump in U.S. households’ medium-term inflation expectations over the past two months. Funding and liquidity conditions have deteriorated, with higher long-term interest rates despite a sharply worsening growth outlook.

Risks to corporate revenue and margin expectations are skewed to the downside. The autos, technology hardware, and homebuilding sectors are most negatively affected by tariffs, while technology and gaming sectors appear vulnerable to retaliation by trade partners. Potential Medicaid cuts will have materially negative credit implications for healthcare credits.

Corporate balance sheets, particularly for investment grade issuers, are generally healthy, providing some financial cushion heading into this prospective downturn. Tight bond spreads and healthy issuance volumes over the past few quarters have also pushed out maturity profiles.

The new report, “United States Quarterly Credit Brief – 2Q25” is available here.