The U.S. economy "appears to be in a recession" as the financial market crisis bites deeply, San Francisco Federal Reserve Bank President Janet Yellen said on Tuesday.
"The recent flow of economic data suggests that the economy was weaker than expected in the third quarter, probably showing essentially no growth at all," said Janet Yellen in a speech to the Financial Executives International's Silicon Valley chapter in Palo Alto, California.
"The outlook for the U.S. economy has weakened noticeably, and inflationary pressures have substantially abated. Virtually every major sector of the economy has been hit by the financial shock," Yellen said.
"Growth in the fourth quarter appears to be weaker yet, with an outright contraction quite likely," she said. "Indeed, the US economy appears to be in a recession."
The speech by Yellen came just hours after official data showed the budget deficit tripled in size in the 2007-08 accounting year to $455 billion, or 3.2 percent of gross domestic product.
Her remarks also followed a dramatic period that saw the US government, for the first time since the Great Depression, partially nationalize major banks in its latest move to restore confidence to badly shaken financial markets.
Yellen said she "strongly supported" last week's coordinated interest rate cut by the Fed and other major global central banks, but did not indicate if she thought another cut was needed.
Recession is broadly defined in the United States as more than two quarters of decline in real GDP.
Yellen said there was no clear end in sight for the housing downturn that has helped precipitate the crisis in United States and global financial markets.
Turning to inflation, she said: "Commodity prices, including the price of oil, have plunged."
"Inventories of unsold new and existing homes remain at very high levels, making it difficult to predict with any confidence when housing starts will bottom out," she said. "The bottom for house prices is not obviously in sight."
Meanwhile, auto sales, another key element of the U.S. economy, have been crippled in part by reduced access to auto loans as credit availability shrinks.
"It is because of such impacts that the turmoil in financial markets affects the prospects for growth and job creation in the months and years ahead," she said.
Yellen concluded by saying that turmoil in global financial markets represented "a serious and direct threat to the well-being of all citizens of the global economy."
She said policymakers around the world are working "rapidly and forcefully" to resolve financial crisis that has become global in scale.
"The global economic outlook depends on how well these policies succeed," she added.