President Barack Obama’s $3.9 trillion budget proposal for next year suggests the U.S. economic recovery that began in 2009 will continue to gain momentum over the next few years but that the unemployment rate won’t fall to pre-recession levels of below 6 percent until 2017.
The White House forecast that the budget deficit would fall from $649 billion in the fiscal year that ends Sept. 30 to $564 billion in fiscal 2015 and $458 billion in 2017. If the projections hold up, it would mark three years in a row of annual red ink below $1 trillion.
The unemployment rate, which was 6.6 percent in January, will continue to slowly decline over the next five years, stabilizing at 5.4 percent by 2018, the administration projected. That’s down from a high of 10 percent reached during the 2008-2009 recession.
The economic forecasts, included in the president’s budget proposal for the fiscal year that begins Oct. 1, are generally in line with projections made by other government and private forecasters.
However, the White House projects a 6.7 percent unemployment rate for 2015. While that’s the same level as in the Blue Chip Consensus — an average of about 50 private-sector forecasts— it is more optimistic than the Congressional Budget Office, which projects 2015 unemployment at 7.1 percent.
The administration forecast is based on assumed congressional approval of all of Obama’s budget’s tax and spending proposals, an unlikely prospect.
The most recent unemployment rate available is January’s 6.6 percent. That’s getting close to the 6.5 percent threshold the Federal Reserve suggested might be the point at which it would back away from its policy of keeping short-term interest rates near zero.
The budget document said that the U.S. housing market has shown “clear signs of recovery, after its collapse in 2007 and 2008, which was a major cause of the financial crisis and recession.”
The administration projects that the deficit next year would be 3.1 percent of the nation’s gross domestic product. That’s down from the 2009 peak of 10.1 percent.
Still, spending is expected to rise again in the next decade, as the population ages and draws on retirement and health care benefits without new sources of revenue.
The White House projected that interest on a 10-year Treasury bill would rise from 3.0 percent now to 4.3 percent in 2017, and reach 5.0 percent by 2021.