The following are highlights from a Senate Banking Committee hearing on Wednesday with Federal Reserve Chairman Ben Bernanke testifying on the U.S. economy and Fed policy.

BERNANKE ON DEFLATION NOT BEING A CONCERN:

I don't view deflation as a near-term risk to the United States. If you look for example at inflation expectations as measured by the government bond market or by surveys, there hasn't really been much decline in expected inflation. That stability of inflation expectations is one factor that will keep inflation from falling very much. So again the forecast of the FOMC is for a gradual increase in inflation toward a more normal, say 2 percent level. There is not at this point, I think, a very high probability that deflation will become a concern.

BERNANKE ON MUNICIPAL BOND MARKET:

It's certainly true that states and localities are under a lot of fiscal stress. ... My view though is that first of all the municipal debt market is functioning pretty well.

There may be some localities in particular that will have trouble, but I would draw a distinction between, say, California and Greece.

I don't at this point view the municipal debt market as a major risk to the economy.

BERNANKE ON STIMULUS AND DEFICIT:

Our baseline analysis is that there is not going to be another large stimulus, based on that we have come up with a forecast of moderate recovery. The fact that we have a 10 percent of GDP deficit is understandable, given what we have been through.

BERNANKE ON CHINA'S CURRENCY POLICY BEING AN EFFECTIVE SUBSIDY:

The numbers that you see in the literature range between 10 and 30 percent range.

BERNANKE ON WHETHER CHINESE GOODS EXPORTED TO US ARE UNDERPRICED 10-30

PERCENT

Yes, holding consistent something like wages which have started to rise, for example, but broadly speaking yes. Again China has made some progress toward increasing the dependence of its economy on its own domestic demand.

BERNANKE ON WHETHER THE CURRENT ACCOUNT DEFICIT IS CONTRIBUTING TO

UNEMPLOYMENT:

There is not much correlation over a longer period of time between overall employment or unemployment and our current account deficit. Where resources are not being utilized in one industry they tend over time to be deployed in other industries. So maybe there is some misallocation across industry, but overall employment doesn't depend too much on the current account.

China California Federal reserve Ben Bernanke