Federal Reserve Board chairman Arthur F. Burns testified yesterday that the bigger budget proposed by both Congress and the administration will boost government borrowing this year and "may impart some upward tendency to interest rates."
Burns, testifying before the House Budget Committee, said that on the basis of the Carter administration's proposed budget revisions designed to stimulate economic growth, "It would appear that federal borrowing in public markets in the current calendar year could be $10 billion or so higher than in 1976."
The House and Senate, which actually formulate the federal budget, have agreed that there is a need to take federal action to stimulate the economy and have agreed to a package which probably will do less than the Carter tax proposals while spending more than Carter wants.
Burns has said before that there is no need to sitmulate the economy. The head of the nation's central bank yesterday said that the conditions are proper for continuing the economic growth which began to solidify last December but was sidetracked temporarily by the severe winter weather.
"It seems doubtful to me . . . that any special efforts to sitmulate growth - at least none of conventional character - are now needed to assure broad economic expansion this year and on into 1978," he said.
Alice Rivlin, director of the Congressional Budget Office, told the Senate Budget Committee that the "outlook for the rest of 1977 is for resumption of economic growth at a rate faster than the disappointing last half of 1976."
But unlike Burns, who discounts the effect of the economic stimulus, Rivlin said the package which Congress is expected to formally embrace today when it vots on a revised budget, contributes "substantially to this (favorable) outlook."
While Burns said there would be some difficulty due to higher interest rates, Rivlin said her office expects only a moderate boost in short-term rates - from an average of 4.7 per cent in late 1976 to an average of 5.8 per cent by the end of the year - which will assist the economic expansion.
Rivlin forecast an improvement in the unemployment rate from the 7.9 per cent it averaged in the final quarter of last year to a range of 6.7 to 7.4 per cent for the final three months of 1977. The Carter administration said its goal is to cut unemployment to between 6.7 and 6.9 per cent by the end of the year.
She said that the stimulus package will add about 1 per cent to the rate of growth in 1977 and reduce unemployment by 0.5 percentage points by the end of the year. During 1978, the package "serves in large part to preserve the gains made during 1977," Rivlin told the Senate committee.
She again warned that the Carter administration's long-range goals of balancing the federal budget and achieving full employment by 1981 will be difficult to achieve.
To reach the goals, the private sector of the economy will have to be much stronger than it has been on average in recent years so that the growth necessary to achieve full employment (conventionally defined now as about 4 to 4.5 per cent can be achieved without generating big federal deficits.
Burns, before the House committee, said that Carter's "commendable" goal of a balanced federal budget by 1981 might be reachable even with the biggest deficit proposed as part of the stimulus package.
But Burns warned that "the task of holding to that timetable will . . . be made more difficult by each and every enlargment of spending. This emphasizes the need for an especially cautious approach to requests for program increases - both now and in the future."
Burns also said that for stimulus purposes he favored a reduction in the corporate income tax over the personal tax reductions proposed by President Carter and modified by the House Ways and Means Committee. He said that the only area of the economy which is not recovering well is capital investment.