Inflation, Interest Rate Headwinds Weigh on Midyear US Credit Outlooks
A more challenging and increasingly bifurcated backdrop for U.S. credits is reflected in Fitch Ratings’ midyear update to 2026 sector and asset performance outlooks.
Fitch said downward sector outlook revisions to ‘deteriorating’ outnumbered upward revisions, though most outlooks remain unchanged since the beginning of the year.
The global rating agency said sectors with ‘deteriorating’ outlooks are concentrated in sectors sensitive to inflation, interest rates and consumer spending, while sectors benefiting from higher energy prices saw positive revisions.
Fitch recently lowered its 2026 U.S. GDP growth forecast to 1.9% from 2.2%, reflecting the adverse impact of the oil price shock, partially offset by AI-driven investments.
Consumer spending, a key driver of U.S. growth, is expected to slow materially to 1.7% in 2026, down from 2.6% in 2025, as inflation erodes real household incomes. Fitch said it no longer expects any Fed rate cuts in 2026, having previously anticipated two 25-bps cuts.
The deteriorating macro backdrop underpins our revision of the North American Sovereigns outlook to ‘deteriorating’ from ‘neutral’.
The U.S. general government deficit is now projected to widen to 7.9% of GDP in 2026, up from 7.1% in 2025, reflecting the fiscal impact of tax cuts in the U.S. tax and spending bill and reduced tariff receipts following the Supreme Court’s International Emergency Economic Powers Act ruling.
US General government debt is expected to exceed 120% of GDP by 2027. November’s midterm elections introduce additional fiscal uncertainty, with potential for increased political gridlock.
The K-shaped consumer dynamic, already present at the start of 2026, has intensified.
Sector and asset performance outlooks for Retail & Restaurants, non-prime RMBS and several ABS sectors were marked as ‘deteriorating’ and remain under pressure, with the Iran conflict and the subsequent fuel price spike deepening the strain.
At midyear, Fitch revised the outlooks for U.S. Homebuilders, North American Building Products, U.S. Packaged Foods, Global Airlines, North American Utilities and Power and North American Finance and Leasing Companies to ‘deteriorating’ from ‘neutral’.
These revisions reflect a squeeze in real household incomes and mounting affordability challenges caused by higher inflation and interest rate expectations.
While utilities are less directly exposed to consumer spending, rising affordability concerns are heightening political and regulatory risks for the sector.
The positive midyear revisions were in energy-related sectors. The outlooks for North American Midstream Energy and LNG Infrastructure were revised to ‘improving ‘, supported by growing domestic and international demand for U.S. natural gas, power generation growth, coal-to-gas conversions and AI data centre-driven demand. Higher-for-longer oil prices also supported a revision of the Global Oil and Gas outlook to ‘improving’. Anthropic Restricts Access to Fable, Mythos 5 AI Models after US Order
