Transcript: Diane Sawyer Sits Down with Federal Reserve Chairman Ben Bernanke

— -- Federal Reserve Chairman Ben Bernanke sat down with ABC News' Diane Sawyer Tuesday to discuss the state of the U.S. economy and the challenges we still face on the road to recovery. Bernanke and Sawyer spoke on a wide range of issues including gas prices, the housing market and where the national unemployment rate is heading.

Here is a transcript of their conversation:

DIANE SAWYER: So you've been teaching the class. Just curious what-- what's-- is there a question that made you stop and think the most as you're teaching?

CHAIRMAN BERNANKE: Well-- you know, I'm talk-- I'm tackling-- a big topic which is the role of the Fed in the financial crisis. And it was a good opportunity just to think through the-- what happened in the last few years. And the theme of the lectures is that, you know, you can make sense of it all if you look to history. I-- I was a student of the Great Depression as an academic and I think some of the lessons-- the mistakes that were made-- during the Great Depression are very helpful in thinking about our response to the-- the recent crisis. And I think we avoided some of the most important mistakes.

DIANE SAWYER: And what's the biggest less-- difference in the lesson we have to learn from this recession and the Depression?

CHAIRMAN BERNANKE: Well, the Federal Reserve and other policymakers made, I think, two principle mistakes in the '30s which led to such-- a disastrous and deep-- depression across the world. And the first was-- monetary policy. The Fed did not ease monetary policy sufficiently. We had a deflation in the United States, prices were dropping at about 10% a year which is very unhealthy for an economy. And secondly the Fed didn't do enough to stop the financial system from-- from crashing. We had almost 10,000 banks fail in the United States in the 1930s. So I think those were the two big mistakes.

DIANE SAWYER: And as-- Americans what's the lesson we should take away from this recession?

CHAIRMAN BERNANKE: Well-- again from the perspective of policy what we needed-- what the Fed needed to do-- was to use monetary policy constructively to help the economy recover and to do what was necessary to keep the-- financial system stable and keep it from falling apart-- which we did. And-- I think we averted what would have been the-- really terrible outcomes-- like those of the 1930s. Now, for Americans-- I think we need to take a look at our economy and think about the role of the financial system-- when it's gonna generate growth for our economy going-- forward. And a lot of-- questions have risen lately about-- education, skills and do we have the skills that will both create-- a more balanced income distribution to help people across the range of-- of-- occupations and-- and areas to-- to-- earn better livings and also to compete internationally. So I think those are some of the areas that we'll be having to look at as a country going forward.

DIANE SAWYER: Turning to the economy today, what is the word you would give American viewers, Americans out in the country about the economy now? Are we in a recovery? Is it sustainable? How strong is this recovery?

CHAIRMAN BERNANKE: Well, we are in a recovery. The economy's been growing-- for almost three years. And we've had some good news lately. We've-- seen the unemployment rate come down. We've seen more jobs be created. And-- consumer and household-- and business sentiment have all improved, so that's all positive, but--

DIANE SAWYER: Strong?

CHAIRMAN BERNANKE: --we do have a long way to go. I-- I would say that we-- you know, it's-- it's far too early to declare victory. We have-- still 8.3% unemployment, that's-- that's too high. We've got a lot of people been un-- out of work for more than six months.