relative to a baseline forecast that does not include the stimulus. they estimate that these effects on output would leave the corresponding unemployment rate between 1 / 2 percentage point and 2 percentage points lower at the end of next year than in the baseline forecast. the goal of the fiscal package is not just to provide a one - time boost to the economy, but to lay the groundwork for a self - sustaining, broad - based recovery. historical experience strongly suggests that without a reasonable degree of financial stability, a sustainable recovery will not occur. although progress has been made on the financial front since last fall, more needs to be done. as you know, in response to ongoing concerns about the health of financial institutions, the treasury recently announced plans for further steps to ensure the strength and soundness of the financial system and to promote a more smooth flow of credit to households and businesses. the plan would use the remaining resources appropriated to the treasury under the emergency economic stabilization act – approximately $ 350 billion – and also involve additional spending to support the activities of fannie mae and freddie mac. whether further funds will be needed depends on the results of the current supervisory assessment of banks, the evolution of the economy, and other factors. the administration has included a placeholder in its budget for more funding for financial stabilization, should it be necessary. unfortunately, the spending for financial stabilization, the increases in spending and reductions in taxes associated with the fiscal package, and the losses in revenues and increases in income - support payments associated with the weak economy will widen the federal budget deficit substantially this year. taking into account these factors, the administration recently submitted a proposed budget that projects the federal deficit to increase to about $ 1. 8 trillion this fiscal year and to remain around $ 1 trillion in 2010 and 2011. as a consequence of this elevated level of borrowing, the ratio of federal debt held by the public to nominal gdp is likely to move up from about 40 percent before the onset of the financial crisis to more than 60 percent over the next several years – its highest level since the early 1950s, in the years following the massive debt buildup during world war ii. of course, all else equal, this is a development that all of us would have preferred to avoid. but our economy and financial markets face extraordinary challenges, and a failure by policymakers to address these challenges in a timely way would likely be more costly in the end. we are better off moving aggressively today to solve our economic problems ; the alternative could be a prolonged episode of

by a sharp contraction in economic activity. after edging down during the summer, real gross domestic product ( gdp ) is reported by the commerce department to have declined at an annual rate of 6. 2 percent in the fourth quarter of last year, with nearly every major category of final sales contributing to the drop. the recent near - term indicators show little sign of improvement. businesses shed 600, 000 jobs in january, about the same pace of job loss as in november and december, and the unemployment rate jumped to 7. 6 percent. moreover, the number of claims for unemployment insurance has moved higher since mid - january, suggesting that labor market conditions may have worsened further in recent weeks. in reaction to the deteriorating job market, the sizable losses of equity and housing wealth, and the tightening of credit conditions, households have continued to rein in their spending. home sales and new construction have continued to decline despite lower mortgage rates, reflecting the uncertain economic environment and the expectation of many potential buyers that home prices have further to fall. the manufacturing sector has also deteriorated further so far this year. manufacturing output fell sharply again in january, bringing the rate of capacity utilization to its lowest level in the post - world war ii period. orders and shipments of durable goods, which dropped in the fourth quarter, fell markedly further in january, and most survey - based measures of business conditions are at or near record low levels. given the weak economic environment, many businesses have apparently cut back their plans for capital expenditures significantly. moreover, exports, which had provided a welcome offset to the weakness in domestic demand through the middle of 2008, fell sharply in the final months of last year, and the incoming news suggests a widespread contraction in activity abroad. despite the considerable decline in final demand in the united states, businesses have managed to trim inventories in recent quarters. still, with sales anticipated to remain poor for a while longer, many businesses are carrying more inventories than they desire and, consequently, are likely to cut production further in the months ahead. meanwhile, overall consumer price inflation has slowed considerably, primarily because of the steep drop in energy prices in the second half of last year. the pce price index was up just 0. 7 percent in january from its year - earlier level, after having risen 3 - 1 / 2 percent over the preceding 12 - month period. core pce price inflation, which excludes the direct effects of food and energy prices, has also slowed, decreasing to 1 - 1 / 2 percent for