US Credit Market Update - May 2025
As the dust settles on early-year volatility, the U.S. economic engine continues to hum with steady employment, rising wages, and inflation trending toward the Federal Reserve’s 2% target. Despite trade tensions and policy uncertainty, confidence is returning—and capital is ready to come off the sidelines.
Why Now?
With private credit managers sitting on $400 billion in dry powder and banks boasting record-high capital ratios, the lending market is flush with liquidity and is primed for deployment. The recent rebound in market sentiment, driven by a more measured tariff approach and robust economic fundamentals, is setting the stage for a surge in M&A and investment activity as we move into the second half of 2025.
Key Highlights:
- Resilient Economy: Unemployment holds steady at 4.2%, wage growth remains strong at 3.9%, and inflation is easing—supporting consumer spending and business expansion.
- Capital Abundance: Private credit assets under management have surged to $4.1 trillion, with one-year returns at 9.5% and floating-rate strategies outperforming at 11%.
- M&A Momentum: While Q1 saw a slowdown, the outlook for the second half is bright—deal pipelines are filling, and investor confidence is rebounding.
- Supportive Policy: Anticipated Fed rate cuts are expected to lower financing costs and further fuel investment and dealmaking.