WASHINGTON -- As key administration officials wrangled with Congress over a huge rescue package, the White House announced President Bush will address the nation Wednesday night on the nation's financial crisis.
Bush will address the nation at 9:01 p.m. ET, the White House announced Wednesday afternoon. Meanwhile, on Capitol Hill, Federal Reserve Chairman Ben Bernanke again made the case for a $700 billion package to rescue financial firms.
The U.S. economy is slowing significantly, marked by a softness in consumer and business spending and exports that are at least in part a result of financial market turmoil, he told the Joint Economic Committee. Bernanke said both inflation and a soft economy are considerable risks, suggesting the Fed is not poised to change interest rates any time soon.
The Fed chief repeated that Congress should act quickly to pass a financial bailout plan, arguing that not acting will have dire consequences for an already weak economy.
"Stabilization of our financial system is an essential precondition for economic recovery," Bernanke said. "I urge the Congress to act quickly to address the grave threats to financial stability that we currently face."
The administation's rescue plan, which would allow the Treasury Department to buy bad assets from banks, has met considerable resistance from lawmakers of both parties. That continued Wednesday — but there were clear signs that lawmakers understood the need for action.
"We will not Christmas-tree this bill, and we will work in a bipartisan way to act, and act soon," Sen. Charles Schumer, D-N.Y. and the panel's chairman, told Bernanke. He said Congress was poised to act "with the exception of a few outliers in either party."
Sen. Lindsey Graham, R-S.C., said Wednesday that "it's not my job to just echo people being mad. I'm going to choose the bad choice over the catastrophic choice."
"We don't have the luxury of kicking this can down the road like we did with immigration or Social Security and dealing with it another day, hoping somebody braver than us will come along and have courage that we can't muster," he said.
Others were not as openly supportive of the measure's chances. Senate Republican leader Mitch McConnell of Kentucky declined to answer questions from reporters about whether the measure could be defeated. Sen. Jim DeMint, R-S.C., said he would seek a full Senate debate on the measure — although he stopped short of threatening a filibuster.
DeMint said the measure will "socialize a whole area of the American economy" and further undermine the confidence of foreign investors. ""Other countries are already losing confidence in our dollar because of our debt," he said.
Wednesday morning, White House press secretary Dana Perino told reporters the nation "could be facing financial calamity" without action.
Bush canceled a planned fundraising trip to Florida to stay in Washington and focus on the crisis, she said.
Bernanke said the turmoil in financial markets is having a significant impact on households and businesses. Most important, the stresses have made it harder and more expensive for consumers and businesses to obtain credit.
He sought to spell out in simple terms why consumers should care about what is happening in financial markets.For example, he noted that if credit is tight, people have a harder time getting credit to buy a car, creating less demand and causing auto companies to lay off workers.
"The credit system is like the plumbing — it permeates throughout the entire system. And our modern economy can not grow, it can not create jobs, it can not provide housing without effectively working credit markets," he said.
"When worried lenders tighten credit, then spending, production, and job creation slow," Bernanke said. "Real economic activity in the second quarter appears to have been surprisingly resilient, but, more recently, economic activity appears to have decelerated broadly."
Bernanke said consumer spending would be "sluggish, at best," in the near future. Business investment, which has held up well in recent months, is also expected to pull back given the soft economy and tighter credit.
Export growth, which has provided a big boost to the economy, is also expected to weaken given the slowing in other economies.
On housing, Bernanke said there is a "hint at some stabilization of sales" for both new and previously owned homes, and falling mortgage rates will likely boost demand in coming months. But he noted that homebuilders still have a large number of unsold properties, which will continue to weigh on construction.
U.S. economic activity "is likely to expand at a pace appreciably below its potential rate in the second half of this year and then to gradually pick up as financial markets return to more-normal functioning and the housing contraction runs its course," he said.
"Given the extraordinary circumstances, greater-than-normal uncertainty surrounds any forecast of the pace of activity. In particular, the intensification of financial stress in recent weeks, which will make lenders still more cautious about extending credit to households and business, could prove a significant further drag on growth. The downside risks to the outlook thus remain a significant concern."
Bernanke said the inflation outlook is "highly uncertain," noting that although energy prices are down from their peaks, prices have been swinging wildly. Monday, oil prices logged their biggest one-day gain in history. "Consequently, the upside risks to inflation remain a significant concern as well," he said.
Fed policymakers last week left their target for short-term interest rates, which influences borrowing costs throughout the economy, at 2%, lowest since December 2004. The Fed typically raises rates to thwart inflation and lowers them to boost the economy. With concern on both sides, the Fed has kept interest rates unchanged since April.
The Fed has taken a wide range of unprecedented steps outside of interest rate policy to help keep markets liquid, keep credit flowing and the economy growing. Last week, the Fed provided an emergency $85 billion credit line to insurer AIG. It also announced guarantees for investors in money market mutual funds that were seeing huge redemptions.
Early Wednesday, the Fed announced it was taking further action to keep dollars flowing abroad. The Fed said it was opening so-called swap lines with foreign central banks in Australia, Denmark, Norway and Sweden worth $30 billion. The Fed already has $247 billion in swap lines with the European Central Bank and central banks in Japan, England, Switzerland and Canada.
Swap lines allow central banks to obtain dollars they can provide to banks in their countries to meet customer demand for U.S. currency.
Contributing: Kathy Kiely in Washington; Randy Lilleston in McLean, Va.; Associated Press