HIGHLIGHTS: Bernanke's congressional testimony

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke on Wednesday testified to the congressional Joint Economic Committee on the economic outlook.

Following are highlights both from his prepared remarks and the question and answer session that followed:

ON HOUSING (from Q&A):

About 15 percent of all home loan purchases we have seen in the last couple of years were by people who were investors... Trying to separate the, quote, deserving from the undeserving is always a difficult problem...

The most serious problems remain in the housing area. To the extent that you can come to agreement among yourselves about ways to improve the mortgage markets so that more people who want to buy homes are able to buy homes and so that unnecessary foreclosures can be prevented ... that is the general area, in the short run, that I would be most encouraging that you look at.

ON POSSIBILITY OF CONTRACTION (from Q&A):

Let me be precise about what I said about our view of the forecast. We're currently in a period of slow growth that began in the fourth quarter of last year. We expect it to continue through the first half of this year. It's possible, not certain, but possible, that the first half of this year will be slightly contractionary. But that does not necessarily mean there is a recession because it would depend on the circumstances and the NBER (National Bureau of Economic Research) makes those determinations well after the fact. At this point, we're expecting better growth in the second half of the year in part because of the monetary and fiscal stimulus which is already in the pipeline. So, that is kind of the outline that we have currently. Of course, its very provisional and we will see how things evolve. But there is no question that the first half of 2008 is a slow period for the economy.

ON UBS LOSSES (from Q&A):

We were aware of their problems for quite a while. They, however, are a Swiss-domiciled bank, and so the Swiss took the primary responsibility. Of course, we worked with the Swiss because they (UBS) have substantial operations in the United States. The appropriate response to their losses would be to raise capital and indeed they did. That was, in fact, very encouraging that they were able to go out and raise a substantial amount of capital. That's exactly what we would urge any institution that was in trouble (to do). Either to raise capital or to somehow get itself acquired would be our general approach.

ON U.S. EXPORTS (from Q&A):

There is one, I think, very encouraging trend, which is the increasing competitiveness of U.S. exports and the extent to which our firms are selling and competing internationally. Our net exports have been a major source of our growth that we've had recently and we expect it to be important in the next year or two, as well.

ON CHINA (from Q&A):

The Chinese currency has been moving now, and more rapidly lately, and that's helpful... The other part of the story is the reorientation of their domestic economy. They have a very export-oriented economy and, as a result, their own consumers have very high savings rates, very low standards of living... We have urged them repeatedly -- and I think we have gotten some good response -- to try to reorient their economy towards raising the standard of living of their own consumers, and maybe their own domestic consumption, and relying less on exports to get a more balanced economy in the longer term.

ON MONETARY POLICY EFFECTIVENESS (from Q&A):

I do believe that the monetary policy actions and the other actions have had the effect of at least offsetting significantly the head winds coming from these financial factors and I think generally providing some stimulus, and I think we have to keep in mind that monetary policy doesn't work immediately, so much of the impact of our recent actions may be yet to come.

CURRENT EPISODE VS. GREAT DEPRESSION (from Q&A):

I think financial instability, which was not addressed by government or anyone else, was a major contributor to the Depression in the U.S. and abroad. I believe the difference today is that we will address financial issues and try to maintain the integrity and stability of our financial system. We will not let prices fall at 10 percent a year. We will act as needed to keep the economy growing and stable. So, I think there are very significant differences between the 30s and today and we've learned a great deal from that episode.

TREASURY'S REGULATORY PROPOSAL (from Q&A):

One of the ideas of this blueprint is to give the Federal Reserve sort of broad authority via a financial markets stability regulator ... We would want to be sure that if we were given that very important responsibility that we had adequate powers, authority, expertise, and so on to make sure we could do it effectively ... I think we would continue to require the ability to evaluate and in some cases make rules concerning the financial systemic stability of major financial institutions. We could not successfully carry out this mission if we had to rely entirely on second-hand reports from primary supervisors of these individual institutions.

ON FED'S TOOLS (from Q&A):

For now, I think we have a full complement of liquidity provision tools. We have taken down the federal funds rate by 300 basis points. We believe we are making an important contribution to try and resolve both the financial issues and also the slowdown in the economy.

We don't have anything (new non-traditional measures) currently planned that's about to be unleashed. We think we have a number of things already that we're using and we hope that they'll prove effective.