White House, Treasury respond to Fitch credit rating warning

Yahoo Finance fiscal policy reporter Jennifer Schonberger breaks down comments by the White House and Treasury Secretary Janet Yellen after Fitch Ratings put the U.S. credit ratings on negative watch.

Video transcript

RACHELLE AKUFFO: Well, the pressure to secure a debt limit deal is getting more urgent as credit rating agency Fitch puts US debt on rating watch negative. Well, joining us now with some insight on this is Yahoo Finance's reporter Jennifer Schonberger. So Jennifer, what has been the White House response to this?

JENNIFER SCHONBERGER: Good morning, Rachelle. That's right. As Republicans and Democrats struggle to strike a deal to raise the nation's borrowing limit, Fitch Ratings has put the US's pristine credit rating on downgrade watch, conjuring up memories of 2011 when the nation's credit rating was downgraded amongst similar brinksmanship touching off a stock market swoon in higher interest rates.

The White House saying in a statement this morning, quote, "This is one more piece of evidence that default is not an option, and all responsible lawmakers understand that." Meanwhile, Treasury saying in a separate statement this morning, quote, "as Secretary Yellen has warned for months, brinksmanship over the debt limit does serious harm to businesses and American families, raising short term borrowing costs for taxpayers and threatens the credit rating of the United States."

Secretary Yellen said Wednesday that it seems almost certain the US government will not be able to pay its bills past early June. Saying, quote, "we no longer see very much likelihood there are resources that will enable us to get to the middle or end of June." Yellen says there are early signs of stress in financial markets already pointing to much higher yields on Treasury bills coming due in early to mid-June.

Yellen noted that in the debt ceiling showdown during 2011, the US paid an estimated extra $1 billion in interest payments just during that year. And that interest payments remained higher for a bit longer despite a deal to raise the debt ceiling in the 11th hour.

Now meanwhile, minutes from the Fed's last policy meeting show officials think they need to be ready to deploy liquidity and regulatory tools in the event that the debt ceiling is breached. Rachelle.

RACHELLE AKUFFO: And speaking of the Fed, also have some Fed speak for us from Boston's Susan Collins. What have you heard there?

JENNIFER SCHONBERGER: Yeah, Rachelle. Boston Fed President Susan Collins speaking this morning in Rhode Island saying that she thinks the Fed may be near or at a point where it could pause raising interest rates, citing a moderation in inflation. She thinks this is going to allow the Fed to take a step back and see how the 10 interest rates that the Fed has already done over the past year permeate through the economy while also taking into account the credit tightening we're seeing on the back of those recent bank failures this spring. Rachelle.

RACHELLE AKUFFO: All right. Thanks for getting us up to speed. Jennifer Schonberger there. Thanks so much.