Fitch Warns of Rising Inflation in the U.S. Amid Global Growth Slowdown

Fitch Ratings issued a warning in its December 2024 Global Economic Outlook (GEO) report, indicating that inflation risks in the United States have increased due to stronger-than-expected growth in consumer spending, impending increases in tariffs raising import prices, and a slowdown in net migration exerting pressure on labor supply growth.

Fitch expects global growth to decline slightly to 2.6% in 2025, a forecast that has not changed significantly since the September GEO. However, the relative stability at the global level masks some significant forecast changes in major economies. U.S. growth for 2025 has been raised by 0.5 percentage points to 2.1%, while the Eurozone growth forecast has been lowered by 0.3 percentage points to 1.2%. China's 2025 forecast has also been reduced by 0.2 percentage points to 4.3%.

"The main driver of our revision for the U.S. is the reassessment of the consumer spending outlook, where we have not observed the gradual slowdown we expected. Data revisions indicate that household income is rising much faster than previously measured, and savings buffers are stronger," stated Fitch, emphasizing that real household incomes in the Eurozone are also increasing, but the consumption recovery appears to be more subdued.

Chief Economist Brian Coulton noted, "There is significant uncertainty about what exactly will happen with U.S. tariffs, but substantial increases appear likely. The working assumption in our forecasts is that the average effective tariff rate in the U.S. will return to levels seen in the 1960s, primarily due to the assumption that the effective tariff rate on imports from China will rise markedly."

Coulton added, "We assume that the effective tariff rate in the U.S. will rise by more than 5 percentage points to 8%; this increase is largely explained by an assumption of a 25 percentage point jump in the effective tariff rate applied to China. Broad-based tariff increases are assumed, but the typical increase in the effective rate for other trading partners is around 2 percentage points. Our modeling indicates that tariff increases will have negative impacts on GDP, including the largest adverse shocks in Canada, China, Mexico, Korea, and Germany. The global impact is likely to be felt more acutely in 2026, prompting us to lower our GDP growth forecast for China in 2026 by 0.3 percentage points to 4.0% and our global growth forecast by 0.1 percentage points to 2.3%."