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Interest Rates to Rise to 4.25 Percent in December

Business operators should prepare for increased borrowing costs as the Federal Reserve maintains higher rates through 2027.

Updated on Oct. 28, 2026 in Economic Indicators

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The Federal Reserve is projected to lift interest rates to 4.25 percent this December, maintaining higher borrowing costs through 2027. AI Illustration. Upload story photo >

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Fitch Ratings holds a stable outlook for the U.S. credit market despite rising default rates, as strong consumer spending and AI investment bolster the broader economy. The agency now projects U.S. GDP growth of 2.1 percent for both 2026 and 2027.

Why it matters

Operators face a dual environment of rising capital costs and sustained economic expansion, as fixed investment growth forecasts of 4.8 percent for 2026 suggest continued capacity for business spending even as credit defaults climb.

The U.S. private-credit default rate reached 6.3 percent in the year ending September 2026, while the agency projects leveraged-loan defaults will rise to a 4.5 to 5.0 percent range by the end of 2026. GDP growth is forecasted at 2.1 percent annually through 2027.

The players

Fitch Ratings

A global credit rating agency that provides independent assessments of credit risk and economic forecasting for institutional and retail markets.

Federal Reserve

The central bank of the United States, responsible for conducting monetary policy and setting benchmark interest rates for the economy.

The details

Fixed investment is expected to grow by 4.8 percent in 2026 and 4.6 percent in 2027, sustained by private investment in artificial intelligence. However, the Federal Reserve is expected to tighten financial conditions further by raising interest rates to 4.25 percent in December 2026 and maintaining that level through 2027, increasing the cost of debt for operators.

Timeline

  1. September 2026: Private-credit default rate reached 6.3 percent.

  2. December 2026: The Federal Reserve is expected to raise interest rates to 4.25 percent.

  3. 2026: Projected GDP growth is 2.1 percent.

  4. 2027: Projected GDP growth is 2.1 percent.

Market Landscape

This outlook reflects the ongoing impact of the Federal Reserve's federal funds rate target on corporate borrowing costs and liquidity. It serves as a benchmark for how private-sector investment in emerging technologies manages to offset higher interest expenses during a rate-tightening cycle.

Operators should prepare for sustained elevated borrowing costs as the Federal Reserve maintains rates at 4.25 percent through 2027. Review debt obligations and refinancing schedules now to hedge against the projected increase in leveraged-loan default rates.

The takeaway

While growth remains resilient, the widening gap between private-credit defaults and projected leveraged-loan performance suggests tightening liquidity for mid-market borrowers. Monitor your weighted average cost of capital and prioritize cash flow management ahead of the December 2026 rate hike.

What happens next

The Federal Reserve is scheduled to convene in December 2026, when it is expected to raise interest rates to 4.25 percent.

Further reading

For broader trends impacting the credit environment, review the latest updates in Economic Indicators.

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