Credit rating agency Moody’s has cautioned that a government shutdown could harm America’s credit rating.

While it said that a short-lived shutdown would ‘unlikely disrupt the economy,’ it would ‘underscore the weakness of US institutional and governance strength’ of the US compared to other top-tier economies. 

Moody’s is the last major ratings agency to still have assigned US its top rating of AAA. 

Last month, Fitch, another major ratings agency, dropped the US rating from AAA to AA+, citing the country’s $33 billion debt and ‘a steady deterioration in standards of governance.’

On Monday, Moody’s echoed that sentiment, saying a shutdown would highlight the constraints that ‘intensifying political polarization put on fiscal policymaking at a time of declining fiscal strength.’

‘Looking ahead, weaker fiscal policymaking that leads to persistently high fiscal deficits and higher than expected interest costs would put pressure on the US rating or outlook,’ Moody’s wrote in a statement.

If Congress this week fails to provide funding for the new fiscal year, starting on October 1, government services would be disrupted and hundreds of thousands of federal workers would be furloughed without pay.

Moody’s analyst William Foster told Reuters the shutdown would be evidence of Washington’s weak policymaking in the face of financial pressures brought about by high interest rates and the country’s substantial $33 billion of debt.

‘If there is not an effective fiscal policy response to try to offset those pressures… the likelihood of that having an increasingly negative impact on the credit profile will be there,’ said Foster.

‘And that could lead to a negative outlook, potentially a downgrade at some point, if those pressures aren’t addressed.’

Moody’s rates the US government AAA with a stable outlook – the highest creditworthiness it assigns to economies.

‘Fiscal policymaking is less robust in the US than in many AAA-rated peers, and another shutdown would be further evidence of this weakness,’ Moody’s said.

President Joe Biden’s top economic adviser, Lael Brainard, said the Moody’s comment highlighted the importance that Congress reaches an agreement.

‘Today’s statement from Moody’s underscores that a Republican shutdown would be reckless, create completely unnecessary risks for our economy, and lead to disruptions for communities and families across the country,’ Brainard, director of the National Economic Council, said in a statement.

‘Congress must do its job and keep the government open.’

A Treasury spokesperson said the Moody’s report delivered ‘further evidence that a shutdown could undercut our current economic momentum’ at a time when inflation and unemployment were both below 4 percent.

Moody’s said the economic impact of a shutdown would likely be limited and short-lived, with the most direct effect from lower government spending, and the negatives growing the longer the shutdown lasts.

Congress so far has failed to pass any spending bills to fund federal agency programs amid a Republican Party feud. The shutdown would not affect government debt payments. 

Earlier this year political feuding around lifting the US debt limit threatened to cause a US sovereign debt default.

Although the crisis was eventually resolved before any debt payments were missed, it was a major factor leading to Fitch’s downgrade last month.

‘In this environment of higher rates for longer and pressures building on the debt affordability front, it’s that much more important that fiscal policy can respond,’ said Foster, from Moody’s.

‘And it looks increasingly challenged because of things like the government shutdown and having come off the debt limit episode, because it’s such a polarized political dynamic in Washington,’ he said.

LIVE

BUSINESS LIVE: Consumer confidence improves as retail sales grow

By Live Commentary

Updated: 03:24 EDT, 22 September 2023

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

You need to be very careful in how you use AI bots to help with holiday planning, Which? reveals.

The consumer group put their vacation-booking skills to the test, and found them wanting when asked to help organise a trip to Greece.

The watchdog put five AI systems to the test – OpenAI’s free ChatGPT and the premium version with a Kayak plug-in; Google‘s Bard; Microsoft‘s Bing Chat; and Expedia, which has integrated the ChatGPT software.

Which? asked the bots 10 questions to eke out advice for almost every aspect of the trip, from Greek islands that are best for peace and quiet to the best travel insurance options, car rental firms and hotels. 

There were some positives – such as the bots simplifying travel insurance jargon – but, from recommending hotels with terrible reviews to sourcing flight prices for airports in the wrong country, on the whole, AI wasn’t particularly useful. Here’s what the investigation uncovered…

THE GOOD

Which? was ‘impressed’ when Bing Chat suggested Kefalonia as an island to visit, as the holiday hotspot was voted Which? members’ favourite Greek island and was awarded five stars for peace and quiet.

The watchdog notes that Bing Chat was also the only bot to cite its sources, even citing a report by Which? in its advice.

In another positive, Which? found the AI bots were handy for jargon-busting – for instance, it notes that ChatGPT quickly translated a ‘wordy and confusing’ extract from a travel insurance policy into simpler, easier-to-understand terms.

THE BAD

One major negative, Which? found, was how AI bots’ responses could sound like a ‘backhanded sales pitch’. It explains that when it asked Bing for the best car hire companies at Kefalonia Airport, it recommended the ‘obscure’ CBR Car Hire Kefalonia, using language that appeared to be ‘lifted almost word for word from the company’s own website’ as justification for picking them. ‘It was a similar story for its recommendation of local rental Flydrive,’ Which? says.

As mentioned, ‘downright dodgy’ hotel recommendations were another red flag. Which? says that Erietta Studios was top of the list for ChatGPT Premium’s ‘best-rated hotels for under £150 a night’, even though the property has a mediocre 6.7 rating on Kayak and 2.5 on Tripadvisor, with more than a third of reviewers rating it ‘terrible’.

On top of that, Bard gave Which? several hotel recommendations with links that take users to various holiday providers’ websites. One of the links led users to ‘On the Beach’– a company that was awarded just three stars for customer service by Which? members, the watchdog notes.

Which? faced more problems when they sought advice for buying travel insurance. Bard’ lost the plot’ when the watchdog asked about holiday cover for a 70-year-old with pre-existing medical conditions and recommended a ‘global travel insurance company’ called Interpol – a firm that Which? couldn’t find any trace of online. The watchdog says that following the link provided led to an Interpol (the International Criminal Police Organisation) themed notebook for sale on Amazon.

The AI bots were similarly wayward when it came to sourcing flights. ChatGPT wrongly told Which? there were no direct flights from Birmingham to Kefalonia, as ChatGPT is only ‘educated’ up until September 2021 – the same year the Birmingham to Kefalonia route was launched by Jet2.com.

The watchdog then put the same question to the premium version of ChatGPT, which costs $20 (£16) per month, but the bot confused Birmingham in England for Birmingham, Alabama.

Financial advice from each of the AI bots varied wildly, Which? found. When it asked how much spending money would be needed for a two-week all-inclusive holiday to Kefalonia, answers ranged from £430 to a whopping £2,920 per person, the watchdog reveals.

Another warning sign flashed when Which? asked if the AI bots could book the trip. All said no, except Bard, which found the watchdog a Ryanair flight and asked for its credit card details, saying: ‘I will book the flight and send you a confirmation email.’ However, Google told the watchdog that Bard was getting ahead of itself and doesn’t have the ability to book flights yet.

Google also told Which? that it continues to make improvements ‘to ensure that accurate information is provided in response to queries’.

Meanwhile, touching on the negative aspects of the responses offered by Bing, Microsoft told Which? that Bing includes its sources so that users can ‘fact check’ and research its responses.

‘We are constantly looking to improve the authority and credibility of our web results,’ Microsoft said.

And OpenAI acknowledged that ChatGPT sometimes gives ‘plausible-sounding but incorrect or nonsensical answers’ – and admits that fixing this issue is ‘challenging’, Which? reveals.

In a statement to the watchdog, Kayak added that it was ‘early days’ for the tech, vowing to make changes to help it ‘prioritise nearby locations’ in future.

The upshot from Which? is that you should ‘make sure to do some extra research before turning your fictional trip into a reality’.

Which? senior researcher/writer Laura Sanders says: ‘The chatbots were able to converse with us in a very natural way, which gives them an air of expertise – but don’t be fooled… several [responses we received] were biased, some were out of date and others were utter nonsense. Worse still, AI often doesn’t reveal its sources, meaning you’re none the wiser if that glowing room recommendation has come directly from the hotel manager.’

And Rory Boland, Editor of Which? Travel, said: ‘More and more consumers are likely to encounter artificial intelligence when booking holidays, but worryingly we’ve found that these services can often give travellers information and recommendations that are inaccurate, biased or even out of date.

‘Because AI chatbots have learned to communicate in a natural, conversational style, it can be easy to be lulled into a false sense of security, and accept their answers at face value – even though the information AI uses can often be directly lifted from marketing materials, or unreliable sources. Those that do decide to experiment with AI to get ideas for their next trip should always make sure to take the time to do their own research and check reviews to make sure they’re getting reliable recommendations.’

Rising gas prices push up the rate of annual inflation to 3.7% – the second consecutive rise THIS YEAR – but experts insist interest rates will remain steady

• Prices rose 0.6 percent month-on-month, driven mainly by a jump in gas prices
• Despite the rise, the Fed is expected to hold interest rates steady next week
• Core inflation, which excludes volatile food and energy prices, remained mild  

By Tilly Armstrong Consumer Reporter For Dailymail.Com

Updated: 10:38 EDT, 13 September 2023