Government Leaders Reassure but Dow Drops

July 15, 2008 — -- As President Bush sought to reassure Americans about the state of the economy, the Federal Reserve chairman today painted a considerably bleaker picture and the U.S. treasury secretary urged Congress to pass a mortgage assistance plan that, thus far, has no price tag.

Bush, speaking at a White House news conference this morning, said that the nation's financial system is "basically sound."

"I understand there's a lot of nervousness, but the economy is growing," the president said. "Productivity is high. Trade's up. People are working — it's not as good as we'd like. And to the extent that we'll find weakness, we'll move."

Bush's comments didn't bolster stocks today. The Dow Jones Industrial Average closed down more than 90 points, falling below 11,000 for the first time since July 21, 2006.

Earlier in the day, Federal Reserve Chairman Bernanke conceded before the Senate committee that the economy continues to flounder and inflation continues to grow despite steps taken by the Fed to shore up financial institutions and encourage spending.

The Fed's decision to allow investment banks access to low-interest loans and its repeated cuts to the key federal funds rate "have had positive effects," Bernanke said in testimony before the Senate Banking, Housing and Urban Affairs Committee.

But, he said, "the economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food and some other commodities."

Bernanke's testimony comes as investors and consumers grapple with a glut of discouraging economic news. In recent days, shares of Fannie Mae and Freddie Mac plummeted as investors reacted to concerns that the government-sponsored companies may not have enough capital to cover losses stemming from the nation's ailing mortgage market.

The government's assurances Sunday night that the Federal Reserve and the Treasury Department would lend money to Fannie and Freddie, if necessary, did not stop the stocks' declines.