Janet Yellen has told Congress that the US Federal Reserve is not contemplating a reversal of monetary policy direction despite a sharp swing in sentiment in global markets.

In recent weeks, speculation has mounted that the central bank could be moved to reverse the 25 basis points increase in the benchmark Fed Funds rate it voted in favor of in December in light of a turbulent start to the year in stock markets at home and abroad.

During the first of her twice-yearly testimonies before the House Financial Services Committee on Capitol Hill, however, Yellen said the Federal Open Markets Committee (FOMC) which sets monetary policy did not expect to be in a situation where it would be necessary to cuts rates back down to zero.

Harry Coolidge, a senior economist at Mizuho Corporate Global was unconvinced. “We think that positioning was for the benefit of the public because, in private, we believe the FOMC members will almost certainly be discussing their next move should the softening economic picture in the US deteriorate further,” he noted.

Ms Yellen held up the improvement in the labor market as being indicative of the strength of the recovery but acknowledged that downside risks to the economy had intensified.

“It’s our belief that, at some point this year, far from raising rates again, the Fed will have to cut them back to zero and, perhaps, even emulate the central banks of the European Union, Japan, Switzerland and others in introducing negative interest rates. That, we think, won’t be enough and we anticipate a resumption of QE,” forecast Coolidge.

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