A new internal Carter administration forecast shows that inflation and the recession are likely to be significantly worse than the White House predicted just one month ago, with the jobless rate topping 8 percent by the end of 1980.
The revised predictions, completed by Carter economist late Tuesday, are expected to jolt White House policymakers and heighten pressure within the administration for the president to propose a tax cut for 1980.
The new forecast is visibly gloomier than that projected by the Congressional Budget Office last month and parallels the most pessimistic predictions published by the imdependent Federal Reserve Board.
The darkened outlook stems from a variety of factors ranging from the continued rise in oil prices to the tighter money and credit policies being pursued by the Federal Reserve Board and an expected speedup in wage increases late this year and next.
The forecast also predicts the recession will last through the first quarter of 1980, at least three months longer than the White House was projecting last month. The figures were compiled by a subcabinet task force. the forecast said:
The economy's output will decline this year by a sharper 1.4 percent, rather than the milder 0.5 percent dip the administration predicted in its last official forecast published July 12.
Inflation will average 11 percent through the fourth quarter of this year and then edge down to 9 percent in 1980, rather than the 8.9 percent for 1979 and 8.1 percent for next year the White House predicted in July.
The nation's unemployment rate, now 5.6 percent of the work force, will rise in the remaining months of this year and soar to 8.2 percent by the end of 1980, rather than 6.9 percent as the White House forecast earlier.
The recovery in 1980 will be weaker than the White House predicted only three weeks ago. The administration's July 12 forecast showed output growing 2 percent in 1980. The new figures call for a 1.1 percent rise.
The new worsened economic outlook appeared likely to spark a fresh look by top policymakers at the question of whether to propose a tax cut. The administration's official line has been to told off, for the moment.
The task force that complied the revised forecast was made up of senior economists from the Treasury, the Office of Management and Budget, the Council of Ecomomic Advisers and the Labour and Commerce departments, The interagency group, which also helped formulate the July 12 predictions, performs the initial work for all White House forecasts.
President Carter was reported to have said as late as Tuesday he views the recession as an "energy spasm" that is likely to be brief and mild and may not require any new government stimulus measures.
However, if the new projections are accepted by the president, it could alter that situation, Most observers believe the specter of an 8 percent-or-higher jobless rate would spur Congress into moving quickly.
The new set of projections was contained in a detailed discussion document that also included forecasts of the impact of various kinds of tax cuts and antirecession measures.
In one, combining a $20 billion cut in Social Security taxes and a $5 billion worth of investment tax incentives, the stimulus was shown as likely to hold the maximum unemployment rate to 7.9 percent and also slow the inflation rate to 8.5 percent in 1980.
Carter has pointed to the possibility of a cut in Social Security taxes as a "noninflationary" way of stimulating the economy. The rationale is that paring payroll taxes also cuts business csts, and thereby helps slow price rises.
The $20 bilion to $30 billion figure was cited by Carter last week in a meeting with key congressional leaders. However, aides said later the president was merely reporting advice he had received from economists, not endorsing that view.
The major factor behind the more gloomy economic forecast this week was the June 27 decision by the oil-exporters' cartel to raise crude oil prices to more than $20 a barrel from about $16 before.
Although the price boost was announced before the White House issued its July 12 forecast, the computations were completed too early to include the full impact of the producers' decision.
Most economists believe the increase in oil prices will exert a $50 billion to $60 billion "fiscal drag" on the economy that will act much like a tax increase -- dampening output further and exacerbating inflation.
The argument behind proposing a new tax cut is to help offset this "fiscal drag." However, opponents caution that slashing taxes could also heighten inflationary pressures.
Apart from the president's reluctance to rush into a tax cut, the decision has been delayed by the recent Cabinet reshuffling, which resulted in new appointments as Treasury secretary and Fed chairman.
Also, Carter's chief economist, Charles L. Schultze, chairman of the Council of Economic Advisers, has been ill. Schultze played a major role in fashioning earlier Carter tax-cut packages.
Carter's nominees for both Treasury and the Fed were approved initially yesterday by congressional committees, but the Senate was not expected to act on either appointment until sometime today.
The document estimated that the rise in unemployment would reduce government tax collections by about $10 billion in fiscal 1980, raising the projected deficit for that year to $38 billion, from $28 billion now.