A top Federal Reserve official has damped expectations that the central bank would raise US interest rates next month, highlighting how the turmoil that has spread from China to global markets is rattling policymakers.

William Dudley, head of the New York branch of the Fed, told a conference that it was “important not to overreact to short-term market developments” but conceded that the argument for tightening monetary policy as early as September “seem[s] less compelling to me [now] than it was a few weeks ago”.

“International developments have increased the downside risk to US economic growth somewhat,” he said, citing China’s economic slowdown, falling commodity prices, strains on emerging markets and the resulting “financial market volatility”.