Inflation and soaring interest rates soon may push this year's budget deficit to $45 billion or more, $6.3 billion above the ceiling set by Congress, congressional sources said yesterday.
Although much of the rise relfects higher-than-expected interest rates, the increase could make it more difficult for President Carter to slash next year's deficit to below $30 billion, as he has promised.
Congressional sources say it now seems almost certain that Congress will have to revise its budget ceilings next February. The White House also is expected to raise its own estimate of the fiscal 1979 deficit next month.
The disclosures came amid these developments:
In a move thought to signal a further rise in interest rates. Chemical Bank of New York, the nation's sixth largest, raised its prime rate to 11.75 percent, up from 11.5 percent before-barely below the 12 percent hight.
Treasury Secretary W. Michael Blumenthal predicted the economy will grow at a robust 5 percent clip this quarter, bolstering the administration's view that a recession is unlikely, at least for the next half-year.
The Commerce Department announced that last quarter's economic performance was more sluggish than was estimated previously, with output rising at a modest 26 percent pace rather than the 3.4 percent reported before.
Presidential inflation-fighter Barry P. Bosworth criticized a new Securities and Exchange Commission rule requireing firms to report eh impact of the new wage-price guidelines, saying it will boost paperwork needlessly.
A sub-Cabinet-level task force, finishing work on the administration's official 1979 economic forecast, predicted slightly slower growth for next year than some policy-makers have been indicating recently.
The new budget estimates for fiscal 1979, prepared by congressional budget-makers, show overall government spending now likely to total $496 billion-a full $8.5 billion more than Congress projected last fall.
About $4 billion of the increase reflects higher-than-expected interest payments. Of the rest, $1.5 billion stems from the impact of inflation and a weeker economy, and the remainder from congressional omissions or program changes.
At the estimators predict inflation should bloat federal tax receipts by just over billion, leaving the fiscal 1979 deficit $6.3 billion above the $38.7 billion projected before.
Congressional leaders earlier had pointed to the prospect of a $38.7 billion deficit as evidence that Congress had practised fiscal discipline. The admininstration's new deficit figure is expected to be smaller than Congress.'
It was not immediately clear how the more sluggish growth rate reported for the third quarter would affect the outlook for 1979. Most of the revision stemmed from a worse-than-expected trade balance, not ffrom slower growth.
However, some economists speculated the third-quarter revisions may make the rebound Blumenthal predicted for the current quarter less meaningful. If the figures for the two quarters are averaged, the economy would be on track.
Blumenthal also made these points:
He said economic policymakers-inlcuding Carter's-"have been guessing more than was true in the placid 1960s" because it's more difficult now to manage the economy. "We don't fully understand what's happening," the secretary said.
He conceded the higher rate of inflation policymakers are predicting for 1979 may force the administration to put tighter restrcitions on its "wage insurance" tax rebate in Congress next session.
He said Carter's policymakers "have anticipated and expect and want a slowdown" but do "not anticipate that that will actually mean a recession. Austerity has just begun," he argued. "Let's not spend too much time analyzing when it's going to end."
The third-quarter revisions did not chane the inflation rate reported previously. That remained at a 7.6 percent annual rate. In the April-June quarter, output rose at an 8.7 percent pace and prices at a 10.8 percent rate.
The department also revised down-ward its estimates of corporate profits to show pretax profits essentially the same as recorded in the April-June quarter, rather than rising 1.5 percent as reported a month ago.
Bosworth's criticism of the SEC regulations requiring firms to file reports on the impact of the wage-price guidelines came during a speech before the National Association of Manufacturers.
The administration anti-inflation fighter branded the SEC request as "useless" and said, "I don't know how in the hell they could do that." He said the White House will ask the Sec TO DROP ITS PLAN.
BOSWORTH, DIRECTOR OF THE COUNCIL ON WAGE AND PRICE STABILITY, ALSO DISCLOSED THAT THE ADMINISTRATION WILL ALLOW BUSINESSES TO PASS ON TO CONSUMERS THE INCREASED COST OF ENERGY RESULTING FROM LAST WEEKEND'S OIL-PRICE BOOSTS BY THE EXPORTING COUNTRIES.
AND HE ANNOUNCED THAT THE ADMINISTRATION WILL ISSUE NEW GUIDELINES LATER THIS WEEK TO COVER THE BANKING AND INSURANCE INDUSTRIES, TWO OF THE GROUPS WHOSE REGULATIONS WERE DELAYED WHEN AN EARLIER SET OF RULES WAS ISSUED.
THE FORECAST RECOMMENDED BY THE SUB-CABINET TASK FORCE WAS SIMILAR TO THAT DISCLOSED BY POLICYMAKERS EARLIER THIS WEEK, EXCEPT FOR A SOMEWHAT SLOWER GROWTH RATE FOR 1979. THE GROUP'S RECOMMENDATIONS MUST STILL BE APPROVED BY HIGHER-UPS.
THE FORECAST GENERALLY CALLS FOR AN INFLATION RATE OF 7.25 PERCENT OR SO, WITH THE ECONOMY GROWING BY 2.5 PERCENT OF MORE AND THE JOBLESS RATE AVERAGING 6.25 PERCENT. THE FORECAST BY POLICYMAKERS ON TUESDAY CALLED FOR 2.75 PERCENT GROWTH.
THE FORECASTS AMOUNT TO A SIGNIFICANT SHIFT FROM CARTER'S EARLIER PROJECTIONS OF A 6.5 PERCENT INFLATION RATE AND 3 PERCENT ECONOMIC GROWTH. ALTHOUGH PART REFLECTS THE NEW OIL-PRICE INCREASE, THE BULK IS JUST A BOW TO REALITY.
MEANWHILE, ALFRED E. KAHN, CARTER'S CHIEF ANTI-INFLATION ADVISER, DENIED THAT THE ADMINISTRATION IS CONSIDERING ANY MOVES TOWARD IMPOSING CREDIT CONTROLS, AS SOME CONSUMER GROUPS CONTENDED AFTER A WHITE HOUSE MEETING.
KAHN ISSUED A STATEMENT YESTERDAY ASSERTING THAT "WHILE I HAVE DISCUSSED THE POSSIBLE DESIRABLITY OF QUANTITATIVE CONTROLS . . . IN THE PAST, I HAVE MADE NO PROPOSALS IN THIS AREA. . . ." HE SAID CARTER "IS NOT CONSIDERING" SUCH CONTROLS.