The prospect of an early US interest-rate increase diminished further yesterday as Janet Yellen advocated caution given unfavourable market conditions, weaker than expected overseas growth and an uncertain inflation outlook.

The Federal Reserve chair said recent declines in market expectations for interest-rate rises had helped cushion the US economy from adverse developments overseas, describing the moves as an “automatic stabiliser”.

But she stressed that the Fed had little scope to reverse course and stimulate the economy with rate cuts if the US unexpectedly hit the buffers, underlying the need for a gradual tightening of policy. She homed in on risks still stewing in China and the oil markets as she argued in a New York address for the central bank to move carefully as it considers when to lift rates again.