All signs are pointing to a further downturn in the US economy but the president has said that the economy will bounce back.

Even as George Bush spoke on Tuesday, however, the dollar plunged to a new low against the euro, while the price of oil continued to fluctuate wildly.

Ben Bernanke, the Federal Reserve chairman, had told congress earlier in the day that the fragile US economy was facing "numerous difficulties'' including persistent strains in financial markets, rising unemployment and housing problems.

Bernanke, who was testifying before the senate banking committee, sounded another warning that rising prices for energy and food were increasing inflation risks.

'Significant challenges'

The situation, he said, poses "significant challenges" for the central bank's policymakers as they try to chart the best course for keeping the economy growing, while making sure inflation does not dangerously flare up.

He said all the economy's problems, including slumping home values, threatened to make people feel less wealthy and less inclined to spend in the months ahead, representing "significant downside risks" to economic growth.

Bernanke said that over the rest of this year, the economy will grow "appreciably below its trend rate" mostly because of continued weakness in housing markets, high energy prices and tight credit conditions.

Inflation has remained high and "seems likely to move temporarily higher in the near term", he said.

Before Bernanke delivered his twice-a-year comprehensive economic assessment to congress, the Labour department reported wholesale prices had jumped 1.8 per cent in June.

That left inflation rising over the past year at the fastest pace in more than a quarter of a century.

Bush confident

Despite Bernanke's remarks, Bush expressed confidence in the US economy, saying the country would emerge "stronger than ever before" from its current slump.

"We're going through a tough time, but our economy is growing, consumers are spending, exports continue increasing and American productivity remains strong," Bush said.

"We can have confidence in the long-term foundation of our  economy, and I believe we will come through this challenge stronger than ever before."

The president did, however, advise people to conserve and be wise about how they use petrol and energy in the current economic climate.  

He also urged congress to act quickly on a plan to shore up housing finance giants Fannie Mae and Freddie Mac.

"We must ensure they can continue to provide access to mortgage credit during this time of financial stress," he said.

On Sunday, the US government announced a plan giving the companies, who underpin about half of all US home loans, access to Federal Reserve credit and a temporary increase, pending congressional approval, of their lines of credit from the US treasury.