Clinton's January budget forecasts to show deficit falling to nearly $150 billion by '98, Panetta says.

WASHINGTON -- The Clinton Administration's budget forecast in January will show the federal deficit declining to nearly $150 billion by fiscal 1998 from its peak of $290 billion in 1992, Office of Management and Budget Director Leon Panetta said yesterday.

"By 1998, instead of $180 billion, it will be more like a $150 billion deficit," Panetta said at a White House press briefing, contrasting the new projections with the OMB's September forecast of the 1998 deficit. Panetta did not reveal the economic and technical assumptions underlying the updated forecast.

But Robert Rubin, chairman of President Clinton's National Economic Council, said in a separate interview that the administration's new economic forecast probably will see interest rates staying close to their current levels next year while growth picks up to a rate near the economy's long-term growth potential of just under 3%.

Rubin added that under a more optimistic, but still "reasonable" growth forecast used as an alternative scenario in the administration's budget, the deficit would decline by 1988 to around $100 billion.

On the economic prospects for 1994, he said, "we should be able to have satisfactory growth without inflation," and continued low inflation should serve to keep interest rates down. Treasury Secretary Lloyd Bentsen agreed with Rubin's assessment at the press briefing, saying that "long-term interest rates will stay at the same relative level as we have now."

Rubin and Bentsen said that the considerable excess production capacity worldwide and high rates of unemployment, especially in Europe, should enable the U.S. economy to grow moderately without igniting inflation.

Panetta and Rubin said they expect the deficit for the current fiscal year, which began Oct. 1, also to be below the OMB's September forecast of $259.4 billion, though they did not specify by how much.

The OMB's September forecast saw the deficit declining from a peak of $290 billion in 1992 to $180 billion in 1998 largely due to enactment of Clinton's $500 billion deficit reduction plan and an economic forecast of moderate growth and inflation.

Its previous deficit estimate of $285.3 billion for fiscal 1993 proved to be more than $20 billion high, largely because of unexpectedly lower interest rates and lower than expected spending to bail out failed savings and loans.

Rubin said the improved budget trends due to lower interest rates are likely to continue into 1994.

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