HIGHLIGHTS: Bernanke faces questions from U.S. lawmakers

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke presented the central bank's semiannual report on monetary and economic policy to the House Financial Services Committee on Wednesday.

BERNANKE ON NEED FOR ACTION ON HOUSING, FANNIE, FREDDIE:

"I would advise prompt action on housing issues, including Fannie and Freddie."

BERNANKE ON CRITICAL GSE ROLE IN MORTGAGE MARKETS:

"We want these firms not just to be, you know, solid, which of course is critical, but beyond that we want them to play an active role in strengthening and stabilizing our mortgage markets because they are really a big part of what's going on in mortgage markets right now."

"To the extent that even if regulatory criteria are met, to the extent that markets have lost confidence -- share prices have come down and spreads have widened -- we need to restore that confidence so they can have the financial strength they need to not only be solvent, which they are, but to go ahead and to be more proactive in strengthening our mortgage markets

.

"Based on discussions I've had, and my own thinking, it looks like the best solution at this point is to maintain their current form, but to increase the supervisory oversight, make it much stronger, which is part of the bill that's being looked in the house and in the senate and take whatever steps are needed to restore confidence in the markets that these are in fact strong institutions going forward."

BERNANKE ON REMOVING TARIFF ON BRAZIL ETHANOL IMPORTS:

"I think that would be a good step to take. I think it would be helpful. I wouldn't want to overstate it because of course Brazil is using a lot of this ethanol for its own country and they've been remarkably successful. They are potentially energy self-sufficient based on ethanol and their own oil sources and so on."

BERNANKE ON OIL IMPORTS AND THE DOLLAR:

"The fact that we have to import most of our oil hurts our trade balance, forces us to send money overseas. It would be better for the dollar, and better for our economic prosperity here at home, if we had more sources of energy domestically."

BERNANKE ON WHETHER UNITED STATES IS IN RECESSION:

"This is clearly a rough time. I think I would not put much weight on this technical terminology. Growth has been slow. Conditions are tough on average families."

BERNANKE ON OIL PRICES SPECULATION/MANIPULATION:

"Manipulation is not a major cause of oil price increases at this juncture."

BERNANKE ON FANNIE MAE, FREDDIE MAC CAPITALIZATION:

"The GSEs are adequately capitalized. They are in no danger of failing."

BERNANKE ON INFLATION:

"I couldn't agree with you more that inflation is a tax and that inflation currently is too high and it's a top priority of the Federal Reserve to run a policy that's going to bring inflation to an acceptable level consistent with price stability as we go forward."

"What the Federal Reserve can control is the increases on the average, on the overall basket of consumer goods, and services. The enormous jumps in oil prices, other commodity prices are to some extent at least due to real factors out of the control of the Federal Reserve.

"The Federal Reserve cannot create another barrel of oil. It's the global supply and demand conditions which are affecting those particular things to the most significant extent."

BERNANKE ON THE DOLLAR, CURRENCY INTERVENTION:

"Our principal policy towards the dollar is to have a strong economy. The Federal Reserve is mandated to provide strong growth and price stability, and my belief is that if we work effectively to achieve that objective, the dollar's strengths in the medium term will reflect that healthy underlying economy.

"Market intervention is a policy that's been undertaken a few times. I think it's something that should be done only rarely, but there be may be conditions in which markets are disorderly where some temporary action may be justified. But I think the dollar in the long term depends really on the fundamentals and it's up to us to get the fundamentals right."

COMMITTEE CHAIRMAN BARNEY FRANK ON NEED FOR SECOND FISCAL

STIMULUS:

"The public sector has mitigated job losses here and that's very relevant here. I think conditions clearly call for a second stimulus. We should be giving aid to state and local

governments."