Washington — A new Congressional Budget Office (CBO) update emphasizes that the road to economic recovery is paved with eggshells. The budget office predicts an improveing economy and lower inflation; but it also says this forecast depends on "highly uncertain factors."
The reports adds the CBO to a lengthening list of those who believe the fight to balance the budget by 1984 is just beginning.
"CBO's updated economic forecast shows substantial improvement in the economy compared with the lackluster performance of recent years," says Alice Rivlin, director of the CBO.
But she adds that Congress must face the painful task of further budget cuts. These cuts, Rivlin says, "many have to be even larger than now being contemplated if a balanced budget is to be reached by 1984.
The guardedly optimistic report was released to a worried Congress. During the recess, legislators discovered that their constituents are screaming about high interest rates. Now the talk in "For Members Only" elevators on Capitol Hill runs to ways of coaxing the prime rate down from its mountaintop of 20 percent.
Among the possibilities being discussed:
* Credit controls.
* An added tax on interest income.
* Reorganization of the Federal Reserve Board.
Also being discussed are wage and price controls.
But Thursday House Speaker Thomas P. (Tip) O'Neill Jr. indicated it was up to President Reagan to act first. "I don't know that we need legislation," he said.
Still, CBO sees the economy picking up late this year. From the fourth quarter of 1981 to the fourth quarter of 1982, real growth is predicted to average 4 percent. Inflation is projected to slow its spiral to around 7 percent for the same period.
"CBO expects that both short-term and long-term interest rates will soon begin to fall," the report adds.
But this good news depends on two highly critical factors, according to the report.
First, there must be no sudden jump in commodity prices, such as the food and fuel price shocks that have bedeviled the economy over the last several years. Bumper world grain prices should help keep food prices moderate, says the report , and oil prices should stay soft for at least a year.
But "if poor weather, unrest in the Middle East, or other uncontrollable factors should once again cause sharply increased food or energy prices, the economic outlook would be much less optimistic," says the report.
second, the Federal Reserve Board's target of slow money growth might not provide enough cash to pay for a strong rise in real CNP. Some forecasters say this is the tragic flaw in Reagan's economic program, and may cause its downfall. But the CBO says this problably won't be a major problem, as "many observers believe that a given level of money will now accommodate more growth in GNP than in the past."
"The CBO forecast may be optimistic on this issue," said Alice Rivlin, "but not overly optimistic."
CBO also believes the US will be helped by the continuing strength of the dollar overseas. It predicts the dollar will remain stable through 1982, although the dollar fell sharply Thursday, while the price of gold rose at least
The CBO report also voices publicly what everyone in Washington has been saying privately for weeks. Unless DAvid Stockman and his axmen find further government funds to cut, budget deficits over the next three years will be larger than the administration has predicted.
CBO predicts the deficit next year will be about $65 billion, instead of the administration's oft-repeated target of $42.5 billion. And, under current economic assumptions, CBO says 1984 will bring a $50 billion deficit, instead of the balanced books Reagan foresees.
The government won't be in the black anytime soon "unless the proposed growth of defense spending is curtailed, nondefense spending is scaled back even further, or increases in revenues are generated," says the report.
And a large portion of the 1984 budget suah as defense procurement programs, sill be determined by 1982 and 1983 appropriations levels.
"Thus, the budget problem facing [Congress] is not only difficult and painful ," says Rivlin, "its solution cannot be delayed."