Fitch warns that without major policy shifts, large U.S. federal deficits—projected at 7.1% of GDP in 2025 and 7.6% in 2026—will remain historically elevated under the Trump administration's extended tax cuts and tepid economic growth.
In its latest outlook, Fitch Ratings pegs the U.S. general government deficit at nearly 8% of GDP in 2024, narrowing only modestly to 7.1% in 2025 thanks to stronger revenue—buoyed by some $160 billion in tariff receipts—and modest savings from the new Department of Government Efficiency.
However, with the 2017 tax cuts extended and output growth softening, the deficit re-widens to 7.6% in 2026 under Fitch's baseline. Rising Social Security and Medicare outlays, combined with elevated interest costs on a larger debt stock, threaten to keep debt-service burdens high.
Fitch expects passage of the “big, beautiful” budget and debt-limit deal in July but stresses that without “meaningful mandatory entitlement reform,” U.S. public finances will lack the resilience needed to anchor long-term stability.
Persistent deficits at these levels imply a growing debt-to-GDP ratio, higher borrowing costs and reduced fiscal flexibility to respond to future downturns or emergencies. Investors and policymakers will watch whether the administration and Congress pivot toward entitlement changes or revenue measures—tasks made more urgent by Fitch's downgrade to AA+ in 2023 following the last debt-ceiling standoff.
As Fitch's baseline assumes little additional fiscal tightening, the risk of another ratings downgrade looms if mandatory spending isn't reined in. The coming weeks' budget negotiations and any signs of bipartisan entitlement talks will be critical inflection points for U.S. creditworthiness.
