The chairman of the Federal Reserve, the U.S. central bank, has told lawmakers the U.S. economy faces "numerous difficulties," and that the threats to the country's economic well-being have increased.

Ben Bernanke testified before Congress Tuesday, as two new reports show soaring costs for food and fuel are hurting the U.S. economy.

He said stabilizing the financial markets will continue to be a top priority, but that policymakers also are wary of the increased risk of inflation and continued sluggish growth rates.  He said as a result, policymakers are unsure about what to do about interest rates.

Meanwhile, the U.S. Labor Department said Tuesday 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.

Another report, from the U.S. Commerce Department, found retail sales rose just one-tenth of one percent in June. 

Officials say automobile sales dropped by more than three percent last month.  Sales at gasoline stations rose last month by 4.6 percent because of higher prices.

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, hurt investor confidence and sent world financial markets lower Tuesday. 

The U.S. dollar also 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.

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.

Some information for this report was provided by AFP, AP, Bloomberg and Reuters.