ISTANBUL

International credit rating agency Fitch Ratings said Tuesday that it believes President Donald Trump’s tariffs significantly raise recession risks in the US and restrict the US Federal Reserve's ability to cut interest rates further, given expected price shocks.

"Tariff revenues will help narrow the US budget deficit in 2025, but the hit to economic growth and additional tax cuts are likely to limit the size of any lasting fiscal benefit," Fitch said in a statement.

Stabilizing the US debt/GDP ratio will be challenging as long as long-term spending pressures remain unaddressed.

Pointing out that the effective tariff rate of the US increased to about 25% with reciprocal tariffs announced on April 2, the statement noted that a higher US effective tariff rate (ETR) means a larger revenue increase when other conditions remain constant.

"However, we believe the tariffs significantly raise US recession risks and constrain the Federal Reserve’s ability to lower interest rates further, given the expected shock to prices," it said.

A sharper economic slowdown would put significant pressure on non-tariff revenues and increase spending through automatic stabilizers.

These effects would delay the immediate increase in revenue from tariffs but would become evident by 2026, along with the negative effects of financial market volatility, the statement said.

Last Wednesday, Trump announced long-awaited "reciprocal" tariffs on over 180 countries, ranging from 10% to 50%.