"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 an address in Palo Alto, California.

"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."

Yellen spoke just hours after official data showed the budget deficit tripled in size in the 2007-08 accounting year to USD 455 billion, or 3.2 per cent 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 nationalise major banks in its latest move to restore confidence to badly shaken financial markets.

Economic downturns are a double blow for government budgets because they reduce tax revenue for governments and increase the need for social security spending in the form of unemployment benefits.

Recession is broadly defined in the United States as more than two quarters of decline in real GDP. "By now, virtually every major sector of the economy has been hit by the financial shock," Yellen told the Silicon Valley chapter of Financial Executives International.