Jan. 7 (Bloomberg) -- President George W. Bush said the U.S. economy is sending contradictory signals, and Congress must keep taxes low to avoid creating further economic turmoil.

``Recent economic indicators have become increasingly mixed,'' Bush said today after lunch with Mayor Richard Daley and city business leaders at the Union League Club of Chicago. ``In a time of economic uncertainty, we don't need to be taking money out of your pocket.''

Government reports in the past two weeks showed new home sales fell to the lowest in 12 years, job creation slowed and the jobless rate rose to 5 percent in December from 4.7 percent. The reports spurred concern the economy will fall into recession, and U.S. stocks last week had their worst start to a year since 2000.

``When you cut taxes, it means people have more money to save, spend or invest,'' Bush said. ``I will strongly urge that Congress keep taxes low,'' he said, while pressing Congress to make permanent tax cuts enacted early in his administration.

As the U.S. economy confronts a slowdown in the housing market and rising energy prices, Bush said his administration is working on a plan to ``reform our mortgage markets'' and has proposed using tax-exempt mortgage bonds to help homeowners refinance loans.

``There are good, solid hard-working Americans that we can help stay in their home by helping them on refinancing,'' he said.

No `Quick Fix'

Bush said there is no ``quick fix'' to rising energy prices and he pushed for greater use of nuclear power and exploration for more oil and gas in ways that are less harmful to the environment.

The odds of a recession are ``more likely than not,'' said Harvard University economist Martin Feldstein, who was chief economist to President Ronald Reagan. Consumers ``are going to be a little more reluctant to spend, and that is going to put a further drag on growth in 2008,'' Feldstein said in an interview in New Orleans on Jan. 5.

The president said last week he may propose an economic package later this month aimed at boosting the economy and avoiding a recession. He's soliciting ideas from Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben S. Bernanke and other economic advisers.

Bush also called for free and open international trade.

``When you open up markets where our goods and services are treated fairly, we can compete with anybody, any time,'' he said.

To contact the reporter on this story: Roger Runningen in Chicago at rrunningen@bloomberg.net

Last Updated: January 7, 2008 15:43 EST