Press Briefing by O.M.B. Director Leon Panetta, Chair of the Counsel of Economic Advisors Laura Tyson, and Deputy O.M.B. Director Alice Rivlin
The Briefing Room
1:14 P.M. EDT
DIRECTOR PANETTA: We're presenting, and I assume most of you have the copies of the Midsession Review. The Midsession Review is issued annually and provides estimates of budget authority, the outlays, and the receipts for Fiscal Years '93 through 1998, and contains, obviously, the administration's revised economic forecast and also incorporates the impact of key legislative changes affecting the budget. And in this instance, obviously, it relates to the economic plan that was adopted in August.
Before going into some of the specifics of the plan I just want to express my personal thanks to the members of both OMB and CEA that worked on the Midsession. It takes a lot of time and a lot of work, and particular, thank Alice Rivlin as Deputy who kind of headed this up, along with Joe Minarik from our operation, and Laura Tyson from CEA.
The administration's updated evaluation of the nation's economy and budget is presented in this report. We waited to present it obviously to try to incorporate the economic plan that was passed by the Congress. We estimate that deficit reduction legislation will reduce budget deficits over the five-year period from Fiscal Year '94 to Fiscal Year '98 by a total of $504.8 billion -- $504.8 billion is the total that OMB has determined is the deficit reduction number that is now to be implemented as a result of the passage of reconciliation.
It contains, as many of you know over the debate on the economic plan, but were there -- over a little over a dollar in spending cuts for every dollar in revenues, or $254.7 billion in spending cuts and $250.1 billion from revenues.
The estimate that the deficit -- the estimate that we have incorporated here basically meets the goal that we started with early on, which is that as a percentage -- the deficits as a percentage of gross domestic product, they will decline by one-half by 1998 from the current level of 4.6 percent of GDP to 2.2 percent.
Without any action, our April baseline projected the deficits would rise to $387 billion for Fiscal Year 1998. This chart basically lays out what the path of deficits would have been without the enactment of the economic plan. That's the top red line here, which proceeds all the way up to $387 billion by the year 1998. The deficit reduction package, plus the economic and technical changes that are now incorporated in the administration's estimates of where the economy are going -- the combination of those two basically produced the deficit line that we now have laid out in this report.
The deficit line basically involves some of the following differences: Beginning in 1993, we had estimated as the April budget baseline a deficit of $309.7 billion. We are looking at a deficit for '93 of $285.3 billion. For '94, just to give you an example there, the '94 number is $305.3 billion under the baseline, what was estimated in April, and it's now $259.4 billion. For 1998, the final year, the total deficit that was projected at that time was $387.7 billion, almost $400 billion, and in that year it will go down to $181 billion.
I think the basic point is this: that we have often said that without action on the economic plan, we were essentially looking at deficits that would range anywhere from $300 billion to $400 billion over these next five years. And some had said $300- billion deficits as far as the eye could see. With the enactment of this economic plan, we are now looking at having reduced those deficits substantially down to, as I said, in 1998, $181 billion.
I think that kind of deficit reduction and the path that you now see in terms of the deficit -- the annual deficit lines indicates that the President and the Congress have taken a major step in controlling the deficits in this country. We've taken -- it's a first step, but it's a major step in the direction of controlling deficits as we follow the path of where deficits are heading as a result of this plan.
And with it, obviously, is a major step in trying to improve the economic future of this country. The enactment of the President's plan -- and we continue to work for interest rates that will decline and provide the additional incentives not only to the financial markets, but to financial investment in this country. And I think all of that has already proven the case for the kind of economic plan that was put in place.
We are confident -- I mean, there have been estimates about where deficits are headed over the last few years that have always been proven wrong. And the reason we are confident that we can make these numbers is essentially because of the economic plan and the credibility of the economic plan. The numbers are real. We've enacted the reconciliation savings on entitlements was close to $100 billion. That has been enacted as a part of this plan, and that will happen.
In addition to that, with regards to the discretionary cuts, we're looking at a hard freeze on discretionary cuts. Those targets will have to be met because we have put in place caps that implement a hard freeze, and if they fail to meet those caps, we will have to cut spending across the board in order to achieve it. So we feel confident that we can achieve these numbers.
There's more to come, obviously. This is, as the President pointed out and as I pointed out, the beginning of a process. When it comes to dealing with deficits, the next steps will be, obviously, health care reform, and the effort to try to control spiraling health care costs in this country. That has to complement the effort of putting the economic plan in place. Secondly, there are net savings that hopefully can be achieved in the National Performance Review that indicate that we can not only improve the efficiency of government, but also achieve additional savings as a result of that effort as well. And those are two major efforts for the fall that the administration will also be putting into place.
Let me introduce Laura Tyson to talk about the economics.
MS. TYSON: I will just give some highlights of the differences between the administration forecast we're presenting today and the one that we first issued in February, which is in our April budget report.
The forecast we're issuing today essentially differs from the one we issued in February in two main respects. First of all, it foresees substantially lower, long-term interest rates. This is merely a reflection of what has already happened. In April, we had a long-term interest rate projection of 6.7 going down to 6.4 by 1998. History -- the events have overtaken this. In fact, we are now issuing a new forecast which is still conservative in the sense that we're projecting higher long-term interest rates than presently exist. If you look at our forecast right now, we have a current long-term interest rate projection of six for 1993, and then 5.9 for the period 1994 to 1998. The actual 10-year rate at the end of last week was about 5.5. So we are continuing in being cautious about long-term interest rates, but we have substantially revised them down based on what has already happened.
In addition, the second major change in our forecast really comes from the fact that we know more now than we did in February. We are now looking at a future from here, and the future we were looking at in February now includes some of our past. And we can incorporate the past into our forecast. Specifically, the economic stimulus did not pass. We estimated that this would subtract by itself .3 percentage points from the 1993 growth rate and from the 1994 growth rate.
The second thing that happened, of course, was that 1993, the first half, which is now the past and was the future when we issued our first forecast, is now over. The first half of 1993 came in slower than we anticipated, and I might add, than private forecasters anticipated. So we got a growth rate in the first half which looks like the revisions which came out this week, which suggest a range of 1.3 for the first half of this year.
That has caused us to lower our growth rate assumption for the year to 2 from 3.1. So initially we had a 3.1. We are now down to 2. That is because the first half of the year did not meet our expectations. We have not changed, and I want to emphasize this -- we have not changed our growth forecast for the second half of the year. We're still forecasting growth in the range of 3 for the second half of the year, and we are still projecting growth next year at 3, which is simply an adjustment for the loss of the stimulus.
Again, let me emphasize that this is consistent with the pattern of private forecasters who tend to see a stronger second half of 1993 than first half of 1993. So those are the main changes.
The other changes in terms of the future -- just let me say, we continue to see -- it's not change -- we continue to see growth between '94 and '98 in the 2.5 to 3 percent range. These numbers are quite close to the consensus of private forecasters. We continue to see the unemployment rate coming down gradually from where it is today on our most recent evidence -- 6.8 -- to 5.5 by 1998. We continue to see a period of moderate inflation, as we did in our first forecast this year in the range of 3.0 to 3.5 throughout the forecast period. So there's much in the forecast which is the same in terms of the future.
The major change -- let me emphasize again -- are, number one, long-term rates have already changed quite a bit and we have brought into our forecast that change. And part of 1993 has proven to be slower -- namely, the first half -- at 1.3 than we anticipated. And we revised our forecast accordingly.
Our forecast otherwise remains more or less unchanged, very consistent with private forecasters. We continue to believe this is a credible conservative forecast and, therefore, we continue to believe that this plus the very detailed set of policies that have been enacted on the budget, will give us a substantial amount of deficit reduction over the next five years.
I think we should have each formal presentation.
MR. PANETTA: Let me have Alice Rivlin speak, and then we'll take questions.
MS. TYSON: And then we'll take questions on all aspects.
DEPUTY DIRECTOR RIVLIN: Let me just very briefly draw your attention to Table 5 on page 34, which is the tabular representation of this Chart 8, because I think it gives you very quickly the basic message about the budget deficit. The top line of that table shows the situation that -- roughly speaking -- it's labeled April but it was very little different from February -- it shows the situation that the Clinton administration was facing going in.
Deficits of over $300 billion and rising -- rising rapidly, as we looked ahead. That was the problem that we had to deal with. As the President's economic team worked on this problem, and we started back in Little Rock in December, we were focusing on that $347-billion deficit for 1997 -- how much could we get that down. And there were only a few optimists in the room at that time that thought we could really get that deficit under $200 billion.
We worked out a plan to bring it down to the low $200 billions -- not even to $200 billion -- half from spending cuts and half from tax increase. And that plan is now in place. If you look down the 1997 column, you'll see what was accomplished: an increase of about $63 billion in receipts, which will lower the deficit; $22 billion in that year of mandatory spending cuts, which have now been enacted; the discretionary spending cuts, which take the form of the caps; and the debt service reduction that goes with reducing the deficit that much, bringing the deficit down by close to $130 billion.
And as we looked ahead at -- that was all on very, very conservative, quite pessimistic economic assumptions of the Congressional Budget Office. As we made our new forecast -- and we couldn't use a CBO forecast, because they don't have a new forecast. They'll have one coming out in a week. But as Laura has pointed out, we made a new forecast which is still very conservative. It is right where the commercial forecasters are. Not a very strong growth forecast. But the application of that forecast gives us another $30 billion, nearly -- $29 billion -- on the deficit, so that we will be, even on this quite conservative forecast, well under the $200 billion by 1997, if things go the way we expect.
Let me just make one other point, and that is that deficit reduction isn't the whole story. We set ourselves a much more difficult goal than just reducing the deficit. This is a plan to grow the economy. Reducing the deficit helps by lowering interest rates and using less of the nation's savings for the government, leaving more for the private investors. But the other thing that the government has to do that's reflected in this plan is increase its own contribution to investment. So we had set ourselves the double and much more difficult problem of, at the same time, shifting of spending toward investments -- and that's reflected in the plan that's been going through the Congress -- and bringing the deficit down.
Q: The main factor why the economic growth rate has been going down from 3.1 percent to 2 percent is simply because the Congress failed to approve the short-term economic stimulus package, or are there other factors that resulted in that dramatic decline?
MS. TYSON: I certainly would not -- I did not say, and would not say that the main factor was that. I said that our original -- we were very explicit about this from the beginning -- we estimated the value of the stimulus package on the 1993 growth rate to be .3. So if you start out with a growth rate of 3.1, as we did, that gets you down to 2.8. You still have some explaining about what happened between 2.8 and 2.0.
I think that -- first of all, let me say that as private forecasters and administration forecasters overestimated the growth in the first half of the year and found the growth rate disappointing. There are a number of things that can be pointed to. It's hard to really sort of give them weights, as we did to the stimulus package. Some of the things one might point to is some evidence of possible income shifting into the last quarter of 1992, which is evident in the most recent report which shows that there was a very large and unexpected increase in wages and salaries, primarily due to bonus payments in 1992. And then there was a -- in the last quarter of 1992. Then there was an adjustment down in the first quarter of 1993. And that may be -- one interpretation of that is income shifting, which would change the growth path between the second -- the last quarter of '92 and the first quarter of '93.
Another thing which has happened -- when you think about some changes that have occurred since the beginning of the year, besides the interest rate change, which I have emphasized -- which has a lagged effect on the economy, so that the interest rates of 150 basis points that we have enjoyed as a consequence of anticipation of enactment of our policy, that has effects on spending only gradually over time.
In the meantime, something else happened, and that is that the rest of the world has done less well than what private forecasters were forecasting at the beginning of this year. Germany has gone from stagnation to negative growth. France has gone into recession. The Japanese growth rates which they had projected at the beginning of this year are being called into question by recent evidence on the state of the Japanese economy. So the rest of the world has grown more slowly than we had anticipated. That has certainly had an effect on our ability to gain growth through net exports, which was a very important part of growth in the preceding years.
Another thing which happened, if you sort of look at the pattern of defense spending in this economy you will see that there was a rather dramatic growth of spending by the federal government in the fourth quarter of '92, followed by a very dramatic -- I think a 25-year high in terms of reduction in federal spending. That, again, is timing of spending on -- primarily timing, we believe, of spending on defense projects.
So there are a number of things which both affected the timing between the end of '92 and the beginning of '93, and also events in the world, I would say, in '93, which have had an effect. The reason we are still optimistic that we -- and we have not revised our forecast for the rest of the year really has to do with thinking about the pattern of effects of long-term interest rates on spending. We have begun to see in the second quarter of this year the kind of increase in strength in business investment spending, in strengthening of consumption spending over the first quarter, in intrasensitive parts of consumption spending. And these are indications, along with a general increase in the strength of final sales in the second quarter over the first quarter.
All of these are indications we believe that the that the interest rate effects are beginning to take hold on spending -- domestic spending components. And in a world which is -- in a global economy where there's a lot of slow growth in our trading partners, it's very important that we look to ways to stimulate domestic demand. The way we are stimulating domestic demand in this economy is through a significant and rapid change in long-term interest rates.
Q: Your long-term forecasts for the economy are in the 2.6 to 2.7 range, and yet that's significantly lower than the growth we had in '92, which was the year that voters tossed out one administration and brought in another, largely for economic reasons. So I'm wondering under your scenario whether it almost guarantees consumer and voter lack of confidence and dissatisfaction.
MS. TYSON: Well, I think one of the things that the experience of '92 might demonstrate is that basically how fast the economy is growing is not necessarily how people perceive what is happening to them. And the thing about '92 that is dramatic, if you look at it -- it is not -- we now know that growth was higher in '92 than consumers and businesses thought. But it makes even more pronounced and more striking the fact that while output was growing, jobs and employment were not. And what we have seen here is a situation in which in the last -- the first six months of the administration, we were able to create nearly as many private sector jobs as were created during the four years of the Bush administration. I think we are seeing here a situation in which what matters is not just the growth of the economy, but the growth of jobs and what happens to the unemployment rate and what happens to people's incomes.
We have done -- for example, in our own forecast, we continue to believe that with growth rates -- a steady growth rate at the pace we're projecting -- between 2.5 and 3 over this period, the unemployment rate will gradually come down. We're already up in the range of 165,000 jobs a month. And the Bush -- the range under the Bush administration was only 45,000 jobs a month. If you look at the series, you don't really begin to see job growth picking up in '92 until in the fall -- in really August, September -- or SeptemberOctober.
So part of what's going on here is to think about people's employment prospects. And then also I want to emphasize that we've done some things in policy. I will just emphasize one part of this package, which I think we should really point to as an incentive mechanism and also as a way of improving the livelihoods of billions of American families, and that's the earned income tax credit. That is a way to make a large number of American families experience a modest recovery in the form of improved income prospects.
Q: One of the things that the President promised right when he was gathering votes was to go beyond the $255 billion in spending cuts this fall. On page 25, you talk about using further spending cuts to fund investments. Do you anticipate doing further spending cuts this fall to do deficit reduction? If so, when and what are you looking at?
DIRECTOR PANETTA: Well, the President had made a commitment to the Congress that in October we would submit an additional package to the Congress that would look at several areas. One, possible rescissions in the appropriations bills that could achieve additional savings. Secondly, we would look at trying to lock in any savings that were, in fact, achieved through the appropriations process so that those savings could not be spent. And, thirdly, we would also look at opportunities in the National Performance Review to submit some of those proposals as part of that package as well, and we hope to do that in October.
Q: Dr. Tyson, what role does NAFTA have in your projection of declining unemployment rate?
MS. TYSON: Our projection in the unemployment rate is based on a macroeconomic assumption about the rate, which includes assumptions about the rate of growth of our net exports. We believe, and I think all of the major studies confirm the notion, that the successful conclusion of the NAFTA agreement will be, on balance, net-job creating for the United States. We have already created on the export side alone, with Mexico's unilateral liberalization, something in the order of 700,000 high-paying jobs, since export jobs in the United States on average pay more than other jobs. And our estimate is that a conclusion of the NAFTA arrangement will actually create additional export sector jobs and, on balance, will be net-job creating for the U.S. economy.
So that's incorporated in the sense of in the incorporation of net export growth. I would have to say that the issue would be if we fail to pass NAFTA, that then the issue of what our net export growth will be would have to be reconsidered; that this is an important part of job creation for the United States in the export sector.
Q: Mr. Panetta, you used the words possible rescission before. Does that mean that you're possibly going to submit a rescission list, or that you're going to submit a rescission list that will possibly be improved? (Laughter.)
DIRECTOR PANETTA: Let me see. Yes, that's --(laughter) -- you can't really tell, obviously, what rescissions are out there until the appropriations process has been completed. And at this stage, the bulk of the appropriations bills are still either in conference or still in the process of passing the House and the Senate. And so what we would like to do is to have the opportunity at the end of the appropriations process then to review all of the appropriations bills to basically determine whether or not there are rescissions that we can recommend to the Congress.
Using past years as a guide, I think there clearly will be the potential for rescissions.
Q: said that to Diane Feinstein that perhaps it will be in the range of $13 billion. I wonder where you got that number. The President said $10 billion to $15 billion, and you've said that to Congressman Penny and other people.
DIRECTOR PANETTA: There have been -- in the discussions we had on Capitol Hill, we never locked in on a specific number, but there were clearly indications of what that potential might be. I mean, some had thought that the number on the House side for the appropriations bills that have passed to date, that they've achieved savings somewhere in that vicinity of $10 billion. We estimate that that's less. That's how that number gathered some strength and then continued to be used.
But I think you can't really make the judgment on whether or not that's achieved until we get to the end of the appropriations process and see whether, in fact, that's done.
Q: Is that over five years, that $10 billion to $15 billion?
DIRECTOR PANETTA: That was just on the Fiscal '94 appropriations.
Q: Back at the time when we got the July monthly budget statement -- there's sort of a lag when we get the information from the government -- you showed a year-to-date budget deficit of $240 billion. And at that time, economists were thinking that the end of the -- with two more months of data, August and September, we could actually see a deficit in the $250 billion to $265 billion range. Why is it that you stuck with this $285 billion area? I mean, what are you not anticipating --
DIRECTOR PANETTA: Would you like to answer that? Well, there's one answer. (Laughter.) I thought that's why you have deputies. (Laughter.)
Q: well, income coming in from deposit insurance?
DIRECTOR PANETTA: I think -- I'm not sure whether CBO had indicated that number. I think there were some comments about CBO coming out with a number in that vicinity. We kind of estimated a number based on kind of back of the hand for July at that time. Basically, the number we've locked in on here is based on several factors that we point out in the report -- one being the additional savings we've had in the S&L area; secondly, the additional revenues that have come in, in part because of lower interest rates. And those are kind of the principal factors that have allowed us to reduce the deficit in addition to, obviously, some spending reductions.
But overall, that number of $280 billion is what we think -- where we think the deficit is headed. You'll have to wait for CBO's analysis, which should come out next week.
Q: The next two months of data, like the August data we haven't seen, and the September data -- did you make any assumptions about what you might see? Would September be a surplus month, or at $20 billion apiece for two months to hit the $280 billion, or what?
DIRECTOR PANETTA: The question is, is there anything that's going to happen over the next two months that might change that $280 billion?
MR. MINARIK: It is conceivable, but I would never want to stake my career as an economist on one month's Treasury statement. Those numbers bounce around a lot. It depends a lot on what happens to be happening in the RTC area. It's very hard to forecast month to month.
Q: Your administration continues to claim that NAFTA will create jobs. Everybody seems to agree that Senate will pass it. You're an ex-member of the House. It's your House and your Democratic colleagues that seem to be the major opposition. What do you think can be done to convince people like Gephardt, Bonior and others that this is important for job growth?
DIRECTOR PANETTA: As a former member of the House, I've been through a lot of those kinds of challenges where suddenly something -- particularly involving agreements, trade agreements, where it looked at the beginning as if there wasn't a chance that a trade agreement had much chance of passing, and then gradually, as members heard the arguments on the other side and understood why it is important to develop those new areas for trade and the negative consequences of not taking action -- the position that the United States would have in the world if, in fact, we voted down an agreement that we have signed with these other nations -- all of those factors come into play. And I think, ultimately, despite the pressures and the loud voices that you hear now, I think it's those very substantive arguments that are eventually going to turn the House in the direction of supporting this.
I think the combination of the Senate passing it plus these arguments on the House side, I think ultimately this is winnable.
Q: If I could ask you a question. The administration said its economic plan was an important first step to economic renewal. But the long-term economic growth projections show pretty modest economic expansion. What are the factors at play that are going to keep the economy below the 3 percent level in '95, '96, '97, '98?
MS. TYSON: Well, first of all, I would say there are a couple of things going on here. Number one is we have gone, I think, for a cautious forecast to gradually bring the economy down to a measure of unemployment, which is roughly what is viewed among economists as something like sort of full capacity utilization. So we've gone for a cautious forecast over these years.
The second thing I want to say is when we talk about the importance of having this package for the growth of the economy, we had in mind a counterfactual -- what if you did nothing? And it was our view that if you did nothing, that you wouldn't be able to grow in a low inflation, steady growth environment over the next five years. That as the economy attempted to do that, with a buildup in the deficit which we projected by looking -- we looked at the numbers in the absence of policy -- we really felt that there was a very great risk to the economy; that instead of seeing a period of stable growth and stable inflation, one would see a spike in long-term interest rates and actually another recessionary slow-growth period. So our counterfactual was not that the economy could grow at 3 percent, and not even that it could grow at 2.5 to 3 percent over a five-year period with low inflation, with no policy.
So our forecast is based on the notion that this is what we can, in a conservative way, give for the economy through our plan. We may, in fact, do better. But the counterfactual was that the economy could not have done this well, and that was our counterfactual.
Let me say one other thing on this. We believe that over time -- I think it's important to emphasize the long-term goals of deficit reduction. And the long-term goals of deficit reduction are a sustained increase in the investment rate and a sustained increase in productivity. And therefore, a sustained increase in real family incomes -- real wages; how people experience the economy on a day-to-day basis in terms of standard of living.
Those effects show up gradually. They are not effects which you see in any given year by a bump up in the growth rate. Those are effects which we are feeding into in a sense of raising slightly our productivity estimates at the end of the period -- raising slightly our capacity growth rates at the end of the period from the bottom of the 2 to 2.5 range, to the 2.5 range, on the belief that we're really going to add to the productivity of the economy long-term and to its ability to generate real wages longterm. But these are benefits which would not show up in the first or second year of a sustained deficit reduction effort.
The point is -- let me just emphasize one other thing. The point is what we have done, we believe, is come up with a plan which allows us to get on a long-term path of higher income growth and higher productivity growth, and at the same time allows us to grow in a sustained way in the short to medium run. We can reduce the deficit and grow and get to a long-term growth rate which is even higher.
Q: Can I ask a question about the deficit reduction package? One of the major elements of the package was to get $56 billion worth of savings from Medicare. And you had a hard time getting that through Congress because many people thought that has to mean a reduction in benefits. Now we're told you're going to have a program to put caps on Medicare that will reduce spending by $180 billion to $250 billion over five years on Medicare. Has that decision been made? What is the amount that you're going to seek? Doesn't it have to require some reduction in benefits, and how can you possibly get Congress to approve that big a reduction when you can hardly get $56 billion through?
DIRECTOR PANETTA: Other than that, what have you done for us lately. (Laughter.) The answer is that we have not made the decision. We are still in the process of making a decision with regards to the health care plan, and without referring to any of the specifics you said, obviously, part of the goal of an effective health care reform program is to try to control costs across the board, including, obviously, those programs at the federal level that at the current rate are doubling and in some instances tripling in terms of their costs -- mainly Medicare and Medicaid.
The problem of trying to get Medicare and Medicaid savings in the context of a deficit reduction plan is kind of one battleground. And it's tough because, obviously, the impact on these programs is going for deficit reduction. On the other hand, if you do it in the context of health care reform, which hopefully then would provide better care or improved care or additional care to those that are involved with those programs, that becomes a much more attractive scenario. So it's in that context that we hope to achieve some additional savings in that area.
Q: Does that mean no reduction in benefits?
DIRECTOR PANETTA: I think the goal is always to try to protect the beneficiaries in this process.
Q: Mr. Panetta, on your deficit outlook, when the President took office you said you were basing your deficit projections on the CBO estimates because they were perhaps the bleakest. And now you've changed that to -- you're now basing it on your own projections. Why the shift?
DIRECTOR PANETTA: Let me explain. What we basically did at that time was, we were trying to develop a baseline on which to then develop our deficit reduction package. We didn't want to fight a lot of battles over economic estimates for the future, because in the past because of rosy scenarios those have become an argument that hurts the credibility of any package. So that's why CBO, we felt, had provided a credible base on which to -- a baseline on which to then develop the package. And it was conservative and everybody acknowledged that that was the case.
We've now passed the package. We've now put it in place. We now are making our estimates based on the passage of that package. And CBO next week, obviously, will be evaluating that package based on their own estimates. So we're really kind of at the other end of the lever now, which is to basically look at this package now using our best judgments about where the economy is going, based on a plan that has passed in which we did use the CBO baseline in order to get it through. And I think, frankly, it helped us because I think there was no one that questioned the credibility of the plan based on the numbers we were using.
And, frankly, even if you look at our estimates here in the Midsession Review, you're looking at what is basically a midlevel estimate with regards to the economy between blue chip and CBO. CBO will probably revise -- I'm sure they'll revise their estimates next week. But I think what you'll find is that, overall, they still remain conservative estimates.
One more question, and then you can have Dee Dee.
Q: The majority of the minority population of the United States voted for President Clinton in the belief that he's going to be -- for the people. However, in the last week has been increased a campaign of misinformation in connection with NAFTA, telling that the job is going to be same to Mexico. There has been created a holy alliance of three presidential hopefuls, Ross Perot, Jesse Jackson and Pat Buchanan. This is outrageous. What is the strategy of the government to tell the truth to the people in order to pass the legislation to create the jobs through NAFTA?
DIRECTOR PANETTA: We certainly hope to present the arguments on behalf of NAFTA. The President has indicated his support for that agreement. We know we're in for a fight in the Congress. We know there will be those that will take positions in opposition to it. But in the end, we remain confident that we can overcome those arguments, that we can show that this is in the best interest of this country, and in the best interest of producing jobs for the future.
Q: I wanted to go back to the journalists question about the long-term growth being --
DIRECTOR PANETTA: Sure. You wanted to follow up with Laura. (Laughter.)
Q: You show that long-term interest rates are going to be steady for like five years. We haven't seen that since the 1960s -- a five-year period of just steady, a long bond rate. You're basing an awful lot of your forecast on this low interest rate environment. What sort of guarantees do you have built in there? I mean, that's an awful long time for a steady bond rate, especially when short-term interest rates are going to start rising and the bond market usually anticipates inflation.
MS. TYSON: We have very little -- I guess we'd pose it the opposite: What could we identify out there in the next four to five years that would cause a significant upward move in the longterm rate? Frankly, we couldn't identify anything. We have a moderate inflation forecast. We don't see anything on the horizon in terms of our policies at home or the rest of the world which would suggest an uptick in inflationary pressure. We actually saw a little concern about that at the beginning of this year, but the year numbers coming in now suggest that basically we are well within the range that we had predicted, which was 3.
We have a small increase in the short-term rate there -- on the short-term interest rate, which is associated with a normal recovery. But, remember, we are predicting a moderate recovery over a four- to five-year period. So without inflationary pressure buildup, which we don't forecast and we don't see the sources of, and without a major change in our policies, which really are deficit reducing over the entire period and, therefore, should have a dampening effect on long-term interest rates, we see no reason to predict an increase in long-term interest rates.
I think what you need to see here is see the decade of the 1980s as a period of aberration where we had historically high real long-term interest rates. And we are going back in this decade as a result of our fiscal policy choices as a result of really this deficit reduction package and more to come -- we are going through a period of a reduction in real long-term interest rates and there's just no reason -- we could see no reason to make that. And, in fact, the blue chip forecast, which I believe has some increase, we believe will be revised -- will be adjusted.
Q: So the market -- the old pattern of market expectations always anticipating inflation -- do you think you've finally beat it?
MS. TYSON: It's not that. We don't anticipate -- it is not that. It is that given our inflation assumption, which we base on looking at underlying conditions of supply and demand in the United States and in the world economy, we don't anticipate any uptick in inflation. Therefore, the market is not -- if you believe our forecast, which is consistent with private forecasts, why would you anticipate that the private -- that the bond market or the longterm market would pick up a signal of higher future inflation?
THE PRESS: Thank you.
END2:57 P.M. EDT
William J. Clinton, Press Briefing by O.M.B. Director Leon Panetta, Chair of the Counsel of Economic Advisors Laura Tyson, and Deputy O.M.B. Director Alice Rivlin Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/269185