Martin described the price of diesel, which has risen above $2.80 in the East and to more than $3 a gallon on the West Coast, as a "huge problem for not only public sector but private sector operators as well."

No other Tennessee systems have canceled classes in response to fuel costs.

The Rhea County closings were not authorized by the state, said Department of Education spokeswoman Rachel Woods.

Smith, however, said state education officials had announced previously that extra snow days could be used if fuel prices rose.

School Board Chairman Harold McCawley said the two-day closing was justified.

"Rhea County is a long county, 34 miles from end to end," McCawley said. "It's just a huge savings of fuel."

Rhea County Finance Director Brad Harris said county schools spent $14,000 on fuel in March, compared to $7,800 in March 2005. He said fiscal year to-date-spending was up from $68,000 to $102,500.

Georgia Gov. Sonny Perdue asked his state's public schools to close for two days in September to conserve fuel when Hurricane Rita threatened to shut down refineries. Perdue has "no regrets," spokeswoman Heather Hedrick said Friday.

A year ago, the depletion of the Social Security trust fund had been projected to occur in 2041, one year later than the current estimate, and the Medicare hospital insurance fund had been forecast to last until 2020, two years longer than the current estimate.

The trustees, who include the head of the Social Security Administration and three members of President Bush's Cabinet, painted a sober assessment of the health of the two programs in advance of the looming retirements of 78 million baby boomers.

They stated that the projected long-term growth rates for both Social Security and Medicare are not "sustainable under current financing arrangements."

The trust funds contain the equivalent of government IOUs. To raise the actual cash to meet obligations, the government must borrow more money from the public by issuing marketable Treasury securities, raise taxes or cut spending in other programs.

Bush tried last year to overhaul Social Security with the introduction of private investment accounts for younger workers but the idea went nowhere in Congress. Democrats attacked the Bush program as a hidden effort to cut future benefits.

In this year's State of the Union address, Bush asked Congress to create a bipartisan commission to study entitlement reform. But even this modest proposal has not generated much interest, in part because lawmakers do not want to address entitlement reforms in a congressional election year.

Treasury Secretary John Snow, the chairman of the trustees group, said the new report depicted "a looming fiscal crisis as the baby boom generation moves into retirement" and he urged Congress to move forward.

"The serious concerns raised by the trustees' reports demand the attention of America's policy-makers and the public," Snow said.

But Democrats charged that the administration was using the trustees reports to try to create an air of crisis to make radical changes to the two benefit programs.

"There is no crisis," said Rep. Pete Stark, D-Calif. "There remains plenty of time to mend rather than end Medicare."

While the depletion of the reserves built up over past years is projected to occur in just 12 years for Medicare and 34 years for Social Security, both programs will face financing issues much sooner at the point that the amount paid out each year exceeds the amount the government collects to fund them.

For Medicare, that occurred for the year of 2004. However, the program is projected to be in the black again this year before crossing over to paying out more than it takes in permanently in 2006 and the years following that.

For Social Security, the point at which the program will pay out more in benefits than it takes in will occur in 2017, the trustees projected, the same as in last year's report.

The one-year faster depletion of trust funds in the case of Social Security occurred because the government estimated a slightly lower average of 2.9 percent rather than 3 percent for the inflation-adjusted return for the trust fund's government bonds.

For Medicare, the faster exhaustion of the trust fund occurred because of rising prices for hospital care and greater utilization by sick people of the program.

The trustees estimated that in 2040 when the Social Security trust fund is depleted, it will be able to pay 74 percent of benefits from the taxes imposed on current workers.

The trustees estimated that the monthly Part B premium that Medicare beneficiaries must pay to cover insurance for doctor visits will have to rise by around 11 percent next year to $98.20 after an increase this year of 12 percent.

Sens. Edward Kennedy, D-Mass., and Debbie Stabenow, D-Mich., said in a statement that the projected increase for next year, if it comes about, would mark the fourth double-digit advance in Medicare premiums.

They said they would introduce legislation to cap future increases to the amount the Consumer Price Index rises in a given year. Last year, consumer prices rose 3.4 percent.

The trustees report reduced the estimate for the cost of the new drug prescription benefit in Medicare, which went into effect this year, by around 20 percent, attributing part of this reduction to the fact that people are signing up for less costly drug plans.

Democratic critics said the funding shortfalls for Social Security and Medicare should be viewed in the context of Bush's drive to make the tax cuts of his first term permanent.

Sen. Jack Reed, D-R.I., said that if Congress approved Bush's request to make his tax cuts permanent and enacted a permanent fix for the alternative minimum tax, which was designed to tax the wealthy but is falling on more middle-class tax payers, that would represent a cumulative revenue shortfall equal to 2 percent of the total economy over a 75-year period.

That is three times the shortfall estimated by the trustees for Social Security over the same period, Reed said.

But Guynn, a voter this year on the Fed's policy-setting committee, also reinforced expectations that the Fed will pause an almost 23 month-long rate hiking campaign at its next meeting, on May 10.

"If -- and I emphasize if -- my most likely forecast of sustainable output growth and modest inflation is right, then I am of the view that we are very close to having Fed policy properly calibrated for now," he said.

Markets believe the Fed will raise rates a quarter percentage point to 5 percent on May 10 and then go on hold for a period of time -- a view reinforced by congressional testimony last week by Fed Chairman Ben Bernanke.

Bernanke said the Fed could hold rates steady while monitoring the cumulative impact of the increase in borrowing costs it has led since it began hiking from an ulta-low 1 percent in June 2004.

His remarks to U.S. lawmakers were interpreted by some people as being somewhat mild on inflation. But CNBC Television said that he told them on Saturday that this impression was incorrect.

A CNBC reporter said she had spoken with him during the White House Correspondents' Association dinner on Saturday.

"I asked him, 'Mr. Bernanke, did the markets and the media get it right last week in terms of its reaction to your congressional testimony?'," said Maria Bartiromo.

"And he said, 'no.' He said 'it's worrisome that people would look at me as dovish and not necessarily an aggressive inflation-fighter."'

Recent data show the U.S. economy is on a solid path, with growth of 4.8 percent in the first three months of the year and buoyant readings on forward-looking indicators signaling that this momentum was carried into the second quarter.

Chicago Federal Reserve President Michael Moskow provided further evidence the Fed is worried that pausing rate hikes just as data show the U.S. economy is growing strongly could send the wrong message on its determination to curb inflation.

"We worry about everything, but my own personal concern is that inflation is at the high end of my comfort zone. I'm talking about core inflation now; subtract oil, and subtract volatile food prices as well," Moskow separately told CNBC.

The Fed expects growth to moderate to a pace of around 3.5 percent after the first quarter as the once-rampant housing market cools. But there are risks to this forecast if housing either weakens more than expected, or if it fails to moderate.

"My best-guess forecast is that we will get some settling in growth to a level that is sustainable. Inflation pressures will stay just that -- pressures -- and won't get translated into cost increases," Guynn told reporters.

"So it is on that basis that I think that we about have policy where it needs to be. If as we begin to get additional readings on output or inflation, that picture changes, then clearly, my view of policy will change as well," he said.

The walk-out could provide another headache for Prime Minister Tony Blair's embattled Labour Party government ahead of Thursday's local elections.

The PCS is demanding a halt to job cuts and wants an assessment of how the 15,000 posts already abolished have affected the DWP.

Union leaders warned that workers in other government departments were losing confidence in the civil service, which could lead to further industrial action. Several disputes are simmering, involving over 100,000 public sector workers.

More than one million local government employees went on strike in March in a pensions dispute that closed schools and caused travel chaos in what unions called the biggest walk-out in 80 years.

PCS general secretary Mark Serwotka said: "Senior management can no longer continue to plough on regardless in cutting jobs.

"Rather than continually being in denial saying everything is fine, the department needs to halt the job cuts programme and jointly assess with PCS the adequate staffing levels needed."

He warned that the dispute would escalate unless the PCS's demands were met, with "hard hitting" action being planned.

A DWP spokesman said: "If we are going to meet our commitment to deliver the highest quality of service to our customers it is vital we push ahead with our modernisation programme.

"It is, therefore, disappointing that the PCS remain opposed to much of the change."