The Carter administration has revised its economic forecast, and the news is bad. The president's economists are now predicting an inflation rate this year in excess of 7 percent, and all economic growth rate barely sufficient to keep unemployment from rising.
In its annual midyear review of the economy, scheduled to be released today, the administration will forecast a 7.2 percent increase in consumer prices in 1978, two percentage points higher than the president confidently predicted in his January budget message.
The administration has also lowered its growth projections, expecting only a 4.1 percent increase in economic output this year, one percentage point less than it predicted last January.
Economists say it takes about a 4 percent growth rate to generate enough new jobs to keep unemployment from rising. In the midyear review, the administration predicts that unemployment will fall only a tenth or two-tenths of a percentage point the rest of this year - to an average of 5.9 percent in the year's last three months from the 6.1 percent recorded in May. It will then fall only to 5.6 percent by the last three months of 1979, according to the new estimates.
The new inflation and growth forecasts come amid fears that the Federal Reserve, the nation's central bank, will continue to drive up interest rates to curb inflation - and may choke off expansion in the process.
Robert S. Strauss, the president's inflation counselor, yesterday was sharply critical of recent Federal Reserve actions raising interest rates. The central bank through its buying and selling of government securities, has raised interest rates a full percentage point in four separate steps sicne late April.
Strauss, in perhaps the most direct shot that the White House has fired at the Fed since President Carter's nominee, G. William Miller, took over as chairman, told a group of reporters that the first "time or two" the Fed raised interest rates in this recent sequence, most people thought that it "helped the anti-inflation fight."
"But the last move or two has had the opposite effect, and I think personally it has been counterproductive. I think it was a mistake," Strauss went on.
He noted that the Fed's avowed purpose to slow the growth of the money supply, has not been achieved by its tightening of monetary policy.
Strauss said the two things the administration must be most concerned about are the government's impact on inflation and the "terribly high interest rates that make everything" more expensive.
But Strauss stopped short of criticizing Miller directly.
He said Miller, who was sworn in last March, "ought to keep doing about what he's been doing. I think he's been doing quite well with the exception of the last half point" on interest rates.
In its midyear forecast, the administration predict little inflation relief or improvement in economic growth next year.
White House economists anticipate that consumer prices will 6.5 percent next year, a sharp upward revision from the 4.9 percent inflation rate projected for 1979 last January.
Similarly, the administration forecasts the economy will grow only 4.3 percent next year, as measured by the so-called real gross national product, the value of the total output of U.S. goods and services adjusted for inflation.
Even the 4.3 percent growth rate for next year is considered optimistic by many economists.
But the administration does not intend to add to its stimulus of the economy next year, according to the new projections. This is mainly because Carter, under pressure from Congress and his inflation-conscious advisers, is now proposing a smaller tax cut than he did earlier this year.
The administration predicts that spending in the current fiscal year, which ends Sept. 30, will be $452.3 billion, down to $1.2 billion from last March's budget update. The deficit is expected to be $51.1 billion this year, compared with the March estimate of $53 billion.
In fiscal 1979, which starts Oct. 1, the administration anticipates spending of $496.6 billion, $2.8 billion less than it forecast in March. The estimated deficit, however, will be $48.5 billion, compared with the $59.6 billion forecast in March. Most of the decline in the deficit is due to the president's decision to trim his tax cut by $10 billion.