Bernanke's testimony on budget, economic outlook

WASHINGTON (Reuters) - The following are highlights from the House Budget Committee hearing on Wednesday with Federal Reserve Chairman Ben Bernanke testifying on the budget and economic outlook.

BERNANKE ON CAP AND TRADE:

"I think an important, just from a short-term cyclical consideration, the extent there's an energy tax, it would make sense to rebate it somehow so that the net purchasing power is not diminished too much by such a tax. But that would be the short-term consideration."

"In the long run this clearly depends on the assessment of the Congress on the importance of reducing carbon greenhouse gas emissions. I'm not a scientist, I can't judge that. If those costs are perceived to be large enough, then some intervention is justified. In addition, though, and I think a point you made ... if we go this way (we) ought to negotiate or work with China and other countries to get them to do the same."

BERNANKE ON SAVINGS RATE:

"Over the last couple of decades, partly because of rising house prices and stock prices, people have sort of felt it not necessary to save. Now they are saving more. This experience (recession), is of course a very negative one, but one benefit might be it's going to have an impact on people's saving behavior."

BERNANKE ON UNEMPLOYMENT:

"The historical experience is that the labor market tends to lag the business cycle so even if the economy begins to recover, unemployment will still remain high. In particular if growth is relatively slow, it won't be fast enough to absorb workers coming into the labor force. This is a very serious problem. People who are out of the labor force tend to lose their skills and their connection to the labor force. When the economy recovers they may not even be employable."

BERNANKE ON ADJUSTABLE MORTGAGE RATES:

"My impression is that most (mortgage rates) reset on shorter-term interest rates, like the LIBOR rate, which is very very low right now, or the Treasury bill rate. Since the Federal Reserve brought interest rates down to such a low level in the last year, concerns about resets in the mortgage market have considerably been reduced. There are certainly very serious concerns about affordability and about principal mortgages being underwater, but the interest rate reset has been considerably moderated by the low level of short-term interest rates."

BERNANKE ON REGULATION OF LARGE COMPANIES:

"I think we will have to have a stronger oversight of the large firms, maybe higher capital, resolution regimes to earlier help resolve failing firms. I believe we need to strengthen the financial infrastructure. I would also say that we need to take a more system-wide approach to regulation. Instead of doing it at individual firms where agency A is only concerned with firm 1 and agency B is responsible for firm 2, there needs to be a more collaborative approach that looks at the whole system to make sure that there are not building risk in one area that are being ignored because they only come to bear on a particular firm. I think a more macro-prudential, system-wide approach would be helpful.