WASHINGTON - The Clinton Administration is generally sticking to its midyear budget forecast that calls for moderate economic growth next year with slightly higher short-term interest rates, an administration official said yesterday.
The official, who did not wish to be identified, dismissed l report published this week in The Washington Post that said some administration officials are worried the economy will start to overheat next year and force up interest rates. "That definitely was something going off the reservation," the official said, "so you shouldn't be looking for much of a change there."
The administration's mid-session review of the budget issued in September forecasts that real gross domestic product will rise 3% next year, which would be slightly stronger than what many economists expect to see this year. "We don't see the real growth outlook very differently than we did at mid-session," the official said.
The forecast calls for the rate on 91-day Treasury bills to rise gradually to 3.6% from the current 3.1%. A similar forecast was issued this week by the National Association of Business Economists.
The official discounted a market rumor circulating yesterday that the administration would accept an increase of 50 basis points in short-term rates by the Federal Reserve. "We don't welcome any such thing, nor do we think it's imminent," the official said.
However, the official did point out that the mid-session budget anticipates some increase in rates. "It is the case that as recoveries progress and strengthen, short-term interest rates usually rise," the official said. "If we put out a forecast that said, ~No increase in short-term interest rates for the next five years,' we would have people down on our backs all over the country saying this is Rosy Scenario's return, and they'd be right."
Many analysts believe the Fed will start tightening its grip on credit some time next year to suppress any rise in inflation, perhaps during the first quarter.
One hurdle for any Fed tightening, however, is that improvements in Labor Department survey methodology that take effect in January may push up the civilian unemployment rate. Analysts say it will be difficult for Fed officials to appear aggressive in containing inflation if the jobless rate appears too high.
Administration officials expect the new survey techniques to result in some increase in the unemployment rate, the official said. The Labor Department is scheduled to release the November employment report today.
Officials within the Treasury Department, the Office of Management and Budget, and the President's Council of Economic Advisers are working on a revised economic estimate for 1994 to be unveiled with the President's budget in February. However, the actual numbers will be available internally later this month for the OMB to review agency budgets and for Treasury officials to make revenue estimates.