HIGHLIGHTS: Bernanke's testimony from Q&A on Fed policy

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke presented the central bank's semiannual report on monetary and economic policy to the Senate Banking Committee on Tuesday.

Following are highlights from the question and answer portion of his testimony:

ON CONFIDENCE IN RECOVERY IN HOUSING MARKET:

"I anticipate that we will have a healthy recovery in the housing market once we have gone through this necessary process. But it will probably be one that is, you know, I think desirably less exuberant than we saw earlier, with somewhat tougher underwriting standards, more investor due diligence, probably less use of securitization or complicated securitized products... I'm confident that the housing market will recover and it will be part of the economy's return to growth."

ON HELPING WALL STREET OVER MAIN STREET:

"Our actions with respect to Bear Stearns, with respect to Fannie and Freddie and with respect to the financial system in general are based on our view that financial stability is critical to economic stability. I just don't accept the distinction between helping Wall Street and helping Main Street. The actions we've take are aimed at helping the overall economy."

ON SPECULATION IN OIL MARKETS:

"There is speculation, but speculation under most circumstances is a positive thing. It provides liquidity and allows people to hedge their risks. It (speculation) provides price discovery. It can help allocate oil availability over time, depending on the pattern of futures prices and so on."

ON PROSPECTS FOR HOUSING MARKET AND ECONOMIC RECOVERY:

"(The home building sector) has already declined quite substantially. It's very likely going to begin to level out somewhere around the end of the year. That leveling out will also provide a position of strength at least in the sense of not subtracting from the GDP growth. As the situation begins to stabilize, the credit markets begin to stabilize, and I think confidence will return to consumers and we'll see the beginnings of a recovery."

ON INVESTMENT BANK SUPERVISION AND THE FED:

"I do think the investment banks need a consolidated supervisor. I have not proposed a particular agency to do that. The key issue is that they have strong consolidated supervision. The only area in which I have raised the possibility of additional powers of the Federal Reserve in my testimony and speeches last week I talked about payment systems, which are systemically important and where, in most countries, central banks have considerable oversight and responsibility. I think it would be useful for the Congress to review how payment and settlement systems are overseen and to ask whether, from a systemic point of view, they are adequately regulated."

ON WHETHER THE UNITED STATES IS IN TECHNICAL RECESSION:

"There's a technical definition of recession, which has to do with behavior of employment, industrial production and other things, and that's a determination that's made by some economists after the fact."

"I don't know whether they will determine we've been in a recession or not according to these technical definitions."

"But I agree with you entirely, whether it's a technical recession or not, the combination of declining wealth, weak job market, rising food and energy prices, foreclosures, tight credit ... all those things are putting tremendous pressures on families and it explains why consumer sentiment is very low."

"People are very worried."

"I certainly would never make the claim that even if we were not in a technical recession, that it was not a serious situation and I just want to assure you that everything the Federal Reserve does is intended to try to promote the welfare of the average American."

ON MEASURES TO SUPPORT FANNIE MAE, FREDDIE MAC:

"The best thing that we can do to remove this uncertainty and speed the recovery is to make sure that the housing market and the mortgage financial markets are functioning as smoothly as possible. If there's clarity which provides assurances the GSEs will have the financial strength they need, and also as Senator Shelby emphasized is also a very strong regulator that will protect the system and protect the taxpayer, I think the combination of those two things will be very constructive."

ON THE NEAR-TERM ECONOMIC OUTLOOK:

"Part of what seems to have happened is that -- perhaps, maybe the fiscal stimulus or other factors-- some of the growth we anticipated has been pulled forward into the second quarter. The second quarter appears to be better than expected. With that strength having been brought forward, to some extent, into the second quarter I think we're looking at the remainder of the year being probably positive growth but certainly not robust growth."

ON THE WEAK DOLLAR AND ITS CONTRIBUTION TO OIL PRICES:

"I do agree, I said so in my testimony."

"It should be noted that the decline in the dollar since 2002 reversed an appreciation of the dollar that took place in the early 90s until that point, and it's related to the dynamics of our trade deficit."

"Some of that has to be unwound."

ON HOUSING AND OIL CONTRIBUTING TO ECONOMIC UNCERTAINTY

"I think the housing sector together to some extent with oil is at the heart of the current uncertainty."

ON HOME-CONSTRUCTION AND HOME-PRICE RECOVERY OUTLOOK:

"I do believe we're going to start to see a stabilization in the construction of homes somewhere later this year, the beginning of next year. House prices may continue to fall longer than that because of the large inventory of unsold homes that we still face. There is uncertainty about exactly what the equilibrium is that prices will reach. It is that uncertainty that is generating a lot of the stress we are seeing in financial markets."

ON NEED FOR A SECOND ECONOMIC STIMULUS PACKAGE:

"On a second stimulus package, my own sense is that we are still trying to assess the effects of the first round. It appears that it does seem to be helping, but it might be yet a bit more time before we fully understand the extent to which additional stimulus may or may not be needed."

ON MARGIN REQUIREMENTS IN THE COMMODITIES MARKET:

"They can affect the cost of credit, but they are also a very important part of the counterparty risk management process for exchanges. And so we need to be careful in changing margin requirements that we don't interfere with these other important functions or that we don't unnecessarily reduce the liquidity in these markets. looking specifically at the whole range of issues regarding transparency."

ON BANK CAPITAL AND SOLVENCY AND CREDIT EXTENSION:

"Our banking system is well-capitalized."

"Our concern has turned...less on the solvency of these institutions and more on their ability to extend the credit our economy needs to keep growing."

ON NEED FOR STRONGER FANNIE MAE, FREDDIE MAC REGULATOR:

"We need a world-class regulator to be able to provide assurance to investors, and to the taxpayer. That's job one. Then we need to think about what else is needed to make sure they are strong enough financially."

ON MOST PRESSING ECONOMIC ISSUE AT PRESENT:

"(The housing market is) affecting consumer wealth and consumer expectations. My suggestion would be in the near term to focus on issues related to housing. That's the most critical and central issue that we face."