09.04.2025 08:42
Fitch Ratings warned that tariffs in the U.S. have significantly increased recession risks and have constrained the Federal Reserve's ability to further lower interest rates. It was noted that the financial effects of tariffs are complex and that it will be difficult for the debt-to-GDP ratio to stabilize as long as long-term spending pressures remain unresolved.
The international credit rating agency Fitch Ratings reported that tariffs have significantly increased recession risks in the U.S. and, considering the expected price shocks, it is believed that the U.S. Federal Reserve's (Fed) ability to further lower interest rates is constrained.
"A BLOW TO ECONOMIC GROWTH"
In a statement from Fitch, it was noted that the financial impact of U.S. tariffs is mixed and will not resolve underlying issues. The statement mentioned that tariff revenues would help narrow the U.S. budget deficit in 2025, but the blow to economic growth and additional tax cuts would limit long-term fiscal benefits.
"STABILITY WILL BE DIFFICULT"
Fitch's statement indicated that unless long-term spending pressures are addressed, it will be difficult to stabilize the U.S. debt-to-Gross Domestic Product (GDP) ratio. The statement recalled that the effective tariff rate in the U.S. rose to about 25% with the reciprocal tariffs announced on April 2, noting that a high effective tariff rate means a larger revenue increase when other conditions remain constant. The statement included the assessment, "However, we believe that tariffs have significantly increased the U.S.'s recession risks and, considering the expected shock in prices, have constrained the Fed's ability to further lower interest rates." It was stated that a sharper economic slowdown would put significant pressure on non-tariff revenues and increase spending through automatic stabilizers, and it is thought that these effects would delay the sudden revenue increase from tariffs but would become apparent by 2026, along with negative effects stemming from financial market volatility.