Feb. 16 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke got off mostly on the right foot with the Democrats in Congress now overseeing the central bank.

During the second day of his semiannual economic testimony before Congress, lawmakers peppered Bernanke yesterday with questions on incomes, jobs and trade, issues central to Democrats winning control in November's elections. Bernanke got respect by acknowledging members' issues while preserving his independence by steering clear of endorsing specific policies.

``As an opening dialogue, I'm not dissatisfied,'' Representative Keith Ellison of Minnesota, a newly elected Democrat on the House Financial Services Committee, said in an interview yesterday. ``It's the beginning of a conversation.''

Bernanke's performance may help him should he need to defend any decision to raise interest rates and will shape ties with legislators in the run-up to 2010, when his first term as chairman expires. The Fed chief helped his cause with a speech last week on income inequality that won praise from lawmakers including the chairmen of the House and Senate committees holding the two-day hearings.

``I was very pleasantly struck by how thoughtfully he discussed wages,'' Representative Barney Frank of Massachusetts, chairman of the House Financial Services Committee, told reporters after Bernanke spoke yesterday.

Senator Christopher Dodd of Connecticut, who chairs the Senate Banking Committee, lauded Bernanke for ``terrific'' honesty at the conclusion of the Feb. 14 hearing.

Laying Groundwork

Bernanke, 53, laid the groundwork for a more welcome reception with his Feb. 6 speech on income inequality in Omaha, Nebraska. He said the challenge for policy makers is to ``spread economic opportunity as widely as possible,'' and recommended policies investing in education and job training.

Alan Greenspan, Bernanke's predecessor, by contrast suggested that free markets were best placed to spur job growth. He said in an Oct. 12, 2005, speech that ``many working people, regrettably, equate labor-market flexibility with job insecurity.''

Democratic Representative Maxine Waters of California told Bernanke she scrapped her prepared statement yesterday after she was ``extremely moved'' reading his speech.

`Virtuoso Performance'

Bernanke sat before legislators for about seven hours over the two days, defending the central bank's stand on interest rates and offering analysis of policy issues without detailing specific prescriptions.

``It was a virtuoso performance,'' said Greg Valliere, chief political strategist at Stanford Washington Research Group, which advises investors including pension funds. ``Bernanke is well on his way toward attaining the same iconic status as Alan Greenspan.''

Investors were also impressed, spurring rallies in stocks and bonds after Bernanke signaled in his testimony that interest rates will be unchanged for at least a few more months. The Dow Jones Industrial Average posted records the past two days, while 10-year Treasury notes staged the biggest two-day rally since November.

The central bank has kept its benchmark rate at 5.25 percent since June after raising it 17 times in two years. Fed policy makers predicted their preferred inflation gauge will fall into Bernanke's comfort range of 1 percent to 2 percent in 2008.

Bernanke didn't escape without clashes. He sparred with Frank yesterday, who said he didn't understand why inflation was the main concern and asked whether the Fed should lower rates. Bernanke responded that the Fed ``would have to respond'' to higher inflation.

Frank `Troubled'

Frank opened another day of hearings today, calling four economists to discuss Bernanke's testimony and whether the Fed's policy is consistent with achieving full employment. He said in opening remarks he was ``troubled'' by the Fed's ``bias'' against inflation over growth. ``As bad as things are when growth is not fairly shared, they would be worse if growth is diminished.''

Several legislators questioned Bernanke on trade and his assessments of China's exchange-rate policy. The Fed chief said he stood by the text of a December speech of his, which labeled China's exchange rate as an effective ``subsidy'' for exports. He urged against restricting trade, which would push up prices, and said the U.S. should continue talks with China.

``While we talk, more jobs leave my district,'' said Representative Joe Donnelly, a newly elected Indiana Democrat.

Dodd told Bernanke that a letter he had sent with other banking regulators on subprime lending practices was ``a little inadequate.''

Ducking Question

Democratic Senator Charles Schumer of New York accused Bernanke of ducking a question on tax policy, even after praising the Fed chief for ``doing a fine job'' his first year. ``In all due respect, you do talk about other policy issues,'' Schumer said after Bernanke told him he didn't want to comment on policymaking.

The exchange illustrated the risks of veering off the Fed's core responsibilities of monetary policy and banking regulation.

Bernanke ``has raised expectations of straight shooting from the Fed chairman,'' said Tom Schlesinger, head of the Financial Markets Center in Howardsville, Virginia, which monitors the Fed. ``If he wants to maintain or build on that reputation, it's important to come up with a more consistent and clear standard for what he'll address directly and what he won't.''

While declining to offer policy proposals, Bernanke still won over lawmakers for what they said was a clearer speaking style than Greenspan, who was famous for the ambiguity of his remarks.

``I happened to like your predecessor -- the problem is I didn't understand a damned thing he ever said,'' Representative Mel Watt, a North Carolina Democrat who chairs a subcommittee on monetary policy, said. ``Whether I agree with you or not, at least you are speaking in English.''

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

Last Updated: February 16, 2007 10:46 EST