WASHINGTON, July 15: As financial market turmoil intensified on worries of a banking crisis, US President George W. Bush and Federal Reserve chairman Ben Bernanke sought on Tuesday to calm jitters while warning of a bumpy road to economic recovery.

Bush expressed confidence the country would emerge “stronger than ever before” from its current malaise.

“We’re going through a tough time, but our economy is growing, consumers are spending, exports continue increasing and American productivity remains strong,” Bush told a news conference.

“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,” he said.

Bernanke meanwhile said the Federal Reserve lifted its outlook for the US economy in 2008 in a forecast that appears to show no recession. But he warned of numerous risks including a potentially troublesome rise in inflation and stressed financial markets.

The Fed chairman said a “top priority” of the central bank would be to keep financial markets functioning, and that the Fed was paying close attention to the troubles of mortgage giants Fannie Mae and Freddie Mac.

Delivering his semi-annual forecast to Congress, Bernanke indicated that his outlook for better growth and cooling inflation remained subject to a “high degree of uncertainty.”

“The economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labour market, and rising prices of oil, food, and some other commodities,” he said.

The central bank projected 2008 growth in a range of 1.0 to 1.6 per cent, up from an April projection of 0.3 to 1.2 per cent. The inflation outlook was hotter at 3.8 to 4.2 per cent for overall prices but the outlook for “core” inflation excluding food and energy was unchanged at 2.2 to 2.4 per cent.

Bernanke said the Fed was monitoring the “considerable stress” in financial markets that has affected Fannie Mae and Freddie Mac.

“In general, healthy economic growth depends on well-functioning financial markets,” he said.

“Consequently, helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve.”

Bernanke said the US banking system is “well-capitalised” but expressed concerns about banks’ ability to keep enough credit flowing to lift economic growth.—AFP