The following are highlights from Federal Reserve Chairman Ben Bernanke's testimony to the Senate Banking Committee on Tuesday on the central bank's semi-annual report on U.S. monetary policy.

FROM QUESTION AND ANSWER SESSION:

BERNANKE ON THE DANGERS OF A DEBT DEFAULT BY FAILING TO RAISE LIMIT:

It would be extremely dangerous and very likely a recovery-ending event.

First, it would almost certainly create a new financial crisis as firms that rely on receiving their interest and principal do not receive it and they're unable to make payments. So that probably would cascade through the financial markets.

Then, there would be a massive loss of confidence in U.S. Treasury securities, which are the deepest most liquid market in the world. Interest rates would spike and that would in turn affect many other assets as well as Treasuries. So the near-term effect would almost be a very sharp resumption of the kind of instabilities we saw in 2008...Broadly speaking it would be I think a very, very bad outcome for the U.S. economy.

BERNANKE ON NOT RAISING THE DEBT CEILING VERSUS GOVERNMENT SHUTDOWN:

We've never had a failure to raise the debt limit. We've had a number of government shutdowns. They're problems, but they haven't been as destructive as debt limit failure would be.

BERNANKE ON LONG-TERM INTEREST RATES AND CONGRESS:

What the markets are looking at is the long-term fiscal discipline of the U.S. government. Whether or not interest rates will spike or whether they'll remain reasonable depends far more on Congress's decisions about long-term fiscal planning than anything the Fed is going to do.

BERNANKE ON FED'S DUAL MANDATE:

Bernanke: Sometimes that causes a conflict where, for example in a stagflationary situation where unemployment is too high but inflation is also too high. Currently, there is not really that much of a conflict because inflation and employment have been quite low and so accommodative policy has been appropriate in any case...

Sen. Bob Corker: At rare times you have high inflation and high unemployment and I think that is what people are concerned about possibly happening now. That would create a conflict for that dual mandate. Is that correct?

Bernanke: It would pose a very difficult situation...I think we've learned that there is no way to have sustained economic growth with high and variable inflation. So, keeping inflation low and stable is -- whatever your mandate -- is absolutely essential and we are committed to doing that.

Corker: Would it give the Fed greater credibility if you had the single mandate...?

Bernanke: We have been functioning under the dual mandate. We think it's appropriate and we are right now not seeking any change. Congress, of course, can certainly discuss that issue and we'll do whatever Congress tells us to do.

Corker: But it does create a policy rub from time to time, or it can...?

Bernanke: It can, but on the other hand there may be circumstances that monetary policy can be constructive on the employment and would we want to ignore that?

BERNANKE ON SIGNS COMMERCIAL REAL ESTATE MARKET IMPROVING:

I would say overall ... some of the worst fears about commercial real estate seem not to be coming true, that there is some stabilization of vacancy rates and prices and so on in this market.

That being said, there's still a lot of properties that are going to have to be refinanced and probably some losses that banks are still going to have to take.

So it's still certainly a risk to the financial system, but it does seem to be looking at least marginally better than we were fearing six months ago.

Ben Bernanke Federal reserve