White House Forecasts Robust Economy

The Bush administration issued an economic forecast Wednesday that projected solid growth this year of 3.5% and predicted that interest rates would be lower than private economists were expecting.

Overall, the administration projected that the economy would be nearly as robust in the second half of this decade as it was in the second half of the 1990s, before the 2001 recession.

Harvey Rosen, chairman of the president’s Council of Economic Advisors, said the economy still faced risks, among them higher-than-expected federal deficits.

“The larger deficits, other things being the same, can crowd out private investment.... It’s hard to know how big that effect is, but virtually all economists believe it’s there, and that’s a good reason for taking seriously the notion of reducing the deficit,” he said.

Rosen said the administration was on track to keep its pledge to cut the deficit in half between 2004, when it was at its biggest, and 2009.

The Congressional Budget Office, which publishes monthly budget updates, said the deficit was substantially smaller this year than in 2004.

The deficit for the first eight months of fiscal 2005 was $273 billion, it said, down from $346 billion for the same period in fiscal 2004.

The reason was strong tax revenue.

The administration forecast economic growth of 3.5% this year and 3.4% in 2006, leveling off to 3.1% in 2009 and 2010. Last year, growth was 3.9%.

Consumer inflation, the administration said, would reach 2.9% this year before settling at 2.4% for the rest of the decade. Six months ago, the administration foresaw an increase in the consumer price index of 2% for this year.

Unemployment was 5.1% in May, and the administration predicted that it would average 5.2% this year, falling to 5.1% in 2006 and 2007. It predicted a 5% rate for the subsequent three years.

As for interest rates, the administration projected averages of 3% this year and 3.4% next year for three-month Treasury bills.

By comparison, the May edition of Blue Chip Economic Indicators, a survey of 53 private economists, projected interest rates of 3.2% this year and 4.1% next year.

For 10-year Treasury bonds, the administration foresaw rates of 4.3% this year and 4.8% next year, lower than Blue Chip’s 4.6% and 5.2%.