WASHINGTON -- Just when the Federal Reserve is running out of room to lower interest rates to boost the sickly economy, President Bush and his Republican allies hope their bigger numbers in Congress will lead to expanded tax breaks for individuals and businesses.

The result is likely to be stronger growth next year but also soaring budget deficits that eventually could act as a drag on the economy by pushing interest rates higher.

Both Bush and Sen. Trent Lott, R-Miss., who will take over as Senate majority leader, let it be known this week that they will move ahead with economic stimulus packages to, as Bush put it, "make our economy stronger so people can find work."

Uncertain recovery

Private economists said there is no doubt that such an effort is needed given a string of recent statistics showing that the uncertain recovery from last year's recession is in danger of stalling out. The jobless rate climbed to 5.7 percent last month and analysts are predicting it will top 6 percent by early next year.

"This economy is dragging along with little or no growth, and the Federal Reserve is close to running out of ammunition," said Larry Chimerine, head Radnor Consulting, an economic forecasting firm in Philadelphia.

The central bank cut interest rates by a bold half-point this week, but economists are worried that the reduction won't have much impact, given that consumer and business rates have been at the lowest levels in four decades for almost a year now and consumers have exhausted much of their pent-up demand.

The administration and Republican leaders so far have not revealed much about just what types of tax cuts or possible spending increases will be in any new stimulus measure.

Tax code an 'abomination'

Lott, meeting with reporters this week, called the present tax code an "absolute abomination," the same language Treasury Secretary Paul O'Neill has been using for months. O'Neill has been working to assemble a package of options to simplify the tax code.

However, most analysts don't believe Bush will tackle such an ambitious agenda, at least right away, and instead will concentrate on smaller tax relief bills that have a chance of passing Congress quickly and putting money into people's pockets next year.

Among the proposals being considered are advancing reductions in income taxes that were included in Bush's $1.35 trillion, 10-year tax cut that won't take effect until 2004. Such a change could provide billions of dollars in badly needed increased consumer spending next year.