Below are highlights from Federal Reserve Chairman Ben Bernanke's testimony on Tuesday on the state of the U.S. economy to the Senate Budget Committee. Bernanke's prepared testimony was virtually identical to testimony on Thursday to the House Budget Committee.

BERNANKE ON POTENTIAL IMPACT OF OIL SUPPLY DISRUPTION:

"As we saw in a modest way early last year, a significant increase in oil prices can be very disruptive, both because it creates inflation and also because it acts like a tax on consumers. ... A major disruption that sent oil prices up very substantially could stop the recovery."

"That being said, I think one of the more encouraging things of the last several years is the fact that with new processes and approaches, the U.S. is becoming a much more prolific producer of fossil fuels and is also making progress on non-fossil forms of energy. For the first time in some time I think there's a chance we can move in the right direction in reducing our exposure to foreign supply disruptions."

BERNANKE ON TIMING, CREDIBILITY OF GETTING FISCAL SITUATION UNDER CONTROL:

"The cumulative effect of all these different things - (the) expiration of the payroll tax, the sequestration, expiration of the Bush tax cuts and other things - collectively would be a fairly sharp change in the near term fiscal position. I'm not saying don't pay for it. I'm just saying do it over a longer period of time, and do it seriously. I agree with Senator Sessions' concern that it's just push it off (to) manana. You don't want to do that. You want to make a credible strong plan, but one that phases in over a period so the economy will not hit a huge pothole."

BERNANKE ON ENTITLEMENT SPENDING:

"Under the current plans if there's no change to our entitlement programs, then the demand for spending, the amount of spending the government is committed to, is going to rise. ... So at some point Congress is going to have to make a tradeoff between what its spending programs are and what taxes it's willing to raise. I've often said I'm in favor of the law of arithmetic: if you want a low-tax economy which has benefits from (an) efficiency perspective, then you've got to make the tough decisions on the spending side. And vice versa if you want to spend more you've got to figure out how to raise the revenue. I'd mainly try to urge Congress to make sure they're looking at both sides so there's a balance between the two."

BERNANKE ON NEED TO LOOK BEYOND 10 YEARS IN CUTTING BUDGET DEFICIT:

"We need a long-term plan to put our debt to GDP ratio, our overall fiscal burden on a sustainable path."

BERNANKE ON UNEMPLOYMENT:

"We are concerned that over the past few years that there has been some modest increase in the sustainable rate of unemployment. One of the factors contributing to that is the fact that about 40 percent of the unemployed have been unemployed for six months or more and those folks lose skills, they lose attachment to the labor force. It makes it difficult for them to find steady employment in the longer-term. Monetary policy really cannot do much to bring unemployment in a sustainable way below those levels. Other policies affecting skills, the structure of the labor market, fiscal policy and trade, all kinds of other policy could affect and bring down that sustainable rate of unemployment and I hope Congress will consider ways to address that problem."

BERNANKE ON IMPACT OF LOOMING TAX INCREASE IN 2013:

"I don't know exactly when uncertainty would become a factor, but surely when we get closer to January 1st and Congress has not given a clear roadmap for how it plans to proceed, that would certainly effect planning - business decisions, household decisions - as they look ahead to next year."

BERNANKE ON THE INFLATION OUTLOOK:

"The energy price increases of early last year have not recurred. Our projections are that inflation is going to remain very subdued, probably below our 2 percent target going into 2012 and 2013. So, because monetary policy works with a lag we have to think about where inflation is going to be, not where it has been in the past. Inflation has averaged about 2 percent a year over my tenure as chairman and we expect it to be at 2 percent or below in the next couple of years. So we think that is entirely consistent with an accommodative policy."

BERNANKE ON FED'S ADOPTION A 2 PCT INFLATION TARGET:

"I want to disabuse any notion that there is a priority for maximum employment. We say very explicitly, we take a balanced approach. Congress gave us a dual mandate. We work to bring both sides of the mandate back towards the target. The main goal of that statement was not to announce any change in policy. The main goal was to give greater clarity about how we define these long-run objectives. But we are certainly going to be working to bring both parts of mandate towards desired levels."