Alice Rivlin, former vice chair of the Federal Reserve and founding director of the Congressional Budget Office, told CNBC on Tuesday she does not understand why the White House based its new budget proposal on 3 percent economic growth.
“They are very optimistic,” she said in a “Squawk on the Street” interview. “We haven’t seen 3 percent growth for a long time.”
President Donald Trump’s 2018 budget, unveiled on Tuesday, assumes the U.S. economy will reach 3 percent growth by 2021 and beyond.
The Congressional Budget Office currently estimates, however, growth at about 1.9 percent and the Fed projects expansion at a 1.8 percent annual rate.
Rivlin, who also served as director of the Office of Management and Budget during Bill Clinton’s presidency, said, “More responsible projections these days are about 2 percent or just under. That’s a big difference.”
“It’s hard to know what the reasoning would be,” she said.
“We’re at full employment,” she said. “The only way you can get higher growth with a very slow growth in the labor force is to have high productivity growth. We haven’t seen that in a long time either.”
Couple those factors with the Fed poised to continue increasing interest rates to keep the economy from overheating in a low unemployment environment and estimates for 3 percent economic growth seem too rosy, Rivlin added.