Feb. 2 (Bloomberg) -- The $10 trillion U.S. economy will expand 4.4 percent this year, boosting employment and investment with the strongest growth since 1999, according to assumptions in the White House's fiscal 2005 budget. Not only will gross domestic product expand more than the 3.1 percent of 2003, ``it would not be surprising'' if growth is even higher, President George W. Bush's economic advisers said. They credit tax cuts and the lowest Federal Reserve benchmark interest rate since 1958. ``The economic outlook appears brighter now than at any time in recent years,'' Bush's budget said. ``There is good reason to believe that a self-sustaining and on-going expansion is at hand, one that will create more jobs, more income, and more consumer spending and business investment.''
The White House forecast was put together by the Council of Economic Advisers, headed by Gregory Mankiw. More conservative than private-sector surveys, it projects the stronger economy will help pare the nation's federal budget deficit to $364 billion in fiscal 2005 from $521 billion in the current fiscal year, which ends Sept. 30. The president wants Congress to extend $1.7 trillion in tax cuts through 2011 as he tries to gird the economic recovery ahead of November's election. The Fed voted Wednesday to hold its benchmark overnight interest rate at 1 percent and promised to ``be patient'' in considering a rate increase. The White House's 2004 GDP forecast matches the median estimate of economists surveyed by Bloomberg News last month. It's lower than the 4.8 percent growth projected by the Congressional Budget Office and the 4.6 percent expansion seen by the Blue Chip Economic Indicators survey.
Unemployment to Fall
Last February, the administration anticipated 3.6 percent growth in both 2003 and 2004. The economy grew 4.5 percent in 1999, and averaged 4.23 percent growth in the final four years of the Clinton administration. Under the administration's new forecast, unemployment will fall from December's 5.7 percent rate to an annual average of 5.6 percent this year. That's lower than the 5.8 percent estimate of the CBO, the 5.7 percent of the Bloomberg survey, and the 5.5 percent anticipated by the Blue Chip survey. This year's budget assumes the economy can expand by 3.1 percent without touching off faster inflation, its ``trend rate'' of growth. Yet the administration's predictions assume a lower rate of inflation this year than last. The consumer price index is forecast to increase by 1.4 percent this year, below the 2.3 percent rise of last year. The CBO predicted a 1.6 percent increase in the CPI this year and the Bloomberg survey forecast a 1.8 percent acceleration.
Interest Rates Seen Rising
And even with inflation tame, the strengthening economy means interest rates will rise, the budget said. The yield on 10- year Treasury notes is likely to average 4.6 percent this year, according to the budget. That's up from 4 percent last year, and below the 4.8 percent anticipated by the Bloomberg survey. At 8:45 a.m. in New York, the yield was 4.16 percent. The budget's overview of the economy said the dollar's 23 percent decline against major U.S. trading partners from February 2003 to the end of last year should help bolster U.S. exports. The White House sums up its economic outlook by saying 2004 began with signs that ``the upside risks to the near-term forecast may exceed the downside risks.'' //www.bloomberg.com