Trump's proposed policies could Impact US credit

November 25, 2024 (MLN): Shifts in the U.S. credit environment are possible if Donald Trump’s campaign platform is implemented as proposed, with tariff hikes, tax cuts, immigration restrictions and regulation rollbacks most consequential for credit profiles, Fitch Ratings says in its U.S. Credit Brief 4Q24 report.

Policy initiatives may be moderated based on their final form and offsetting effects from other policy outcomes, it added.

Treasury yields have jumped on speculation of a slowdown in Fed easing based on growth in monthly core services inflation, the potential for increased inflationary pressures under a Trump administration, and concerns about the fiscal deficit.

The interest rate path is key for residential and commercial real estate, with residential mortgage rates unlikely to decline materially in 2025.

CMBS refinancing risk remains high, with office delinquencies spiking higher driven by term and maturity defaults of lower-tier class B and C office loans.

Positive rating actions exceeded negative actions in the third quarter, although negative rating actions rose as rates remain in restrictive territory and continue to pressure weaker borrowers.

The vast majority of U.S. ratings have a Stable Rating Outlook, reflecting credit protections and ratings headroom. Resilient consumer spending and Fed policy easing will support credit performance heading into 2025, although Trump’s policies may alter the inflation and monetary policy trajectory.

An extension of the corporate tax rates implemented under the Tax Cuts and Jobs Act in 2017 will support corporate issuer free cash flow margins.

However, higher tariffs could diminish consumer demand, increase input costs, or necessitate supply chain reconfiguration.

A Trump administration may also roll back financial, climate and healthcare regulation, which would have direct, longer-term effects on a number of sectors and issuers, including banks, loan securitizations, oil & and gas producers, power projects, utilities, auto manufacturers, hospitals and pharmaceutical companies.

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