U.S. President George Bush is urging lawmakers to act quickly on
legislation to financially support mortgage lenders Fannie Mae and
Freddie Mac, while expressing optimism that the country will weather
the credit crisis.
The president spoke to reporters Tuesday in an attempt to assure the country, and investors, that the government's action would help stabilize the rocky financial markets.
Mr. Bush said although the country is going through a tough time, he believes it will emerge "stronger than ever before."
Meanwhile, the chairman of the Federal Reserve, the U.S. central bank, told lawmakers Tuesday the U.S. economy faces "numerous difficulties," and that the threats to the country's economic well-being have increased.
Chairman Ben Bernanke said stabilizing the financial markets will continue to be a top priority for the Federal Reserve. But he also said policymakers are also wary of the increased risk of inflation and continued sluggish growth rates.
The president and the Federal Reserve chairman spoke as the government reported the impact of soaring food and fuel prices on the economy.
The U.S. Labor Department said wholesale prices jumped almost two percent last month and are up more than nine percent over the past 12 months, the largest surge since 1981.
A report from the U.S. Commerce Department says retail sales rose one-tenth of one percent in June. However, it also said sales at gasoline stations rose last month by more than four percent because of higher prices.
Investors have not responded well to a plan announced Monday to boost mortgage lenders Fannie Mae and Freddie Mac, which own or guarantee almost half of all U.S. home loans. Shares of the two lenders have plunged despite assurance from U.S. Treasury Secretary Henry Paulson that the lenders are financially sound and will not need emergency funding.
U.S. Securities and Exchange Commission Chairman Christopher Cox also announced measures to further protect the trading of Fannie Mae and Freddie Mac shares, while promising lawmakers a thorough investigation of rumors that may have caused additional financial instability.
Earlier, the U.S. dollar hit an all-time low against the euro, while Hong Kong's Hang Seng index dropped nearly four percent, and Japan's Nikkei index fell two percent, led by losses at two of Japan's major banks, Mizuho Financial Group and Mitsubishi UFJ Financial Group. The banks hold billions of dollars in Fannie Mae and Freddie Mac debt. Major European indexes also finished lower.
Investors also were rattled by last week's collapse of IndyMac bank, which came under government control Monday. The fall of IndyMac, which has some $32 billion in assets, is one of the largest bank collapses in U.S. history.
President Bush said despite the collapse, the banking system is sound. He also reminded bank customers that their investments are insured by the government, up to $100,000.