“Inflation is currently a percentage point higher than would have been the case,” she said in a speech yesterday in Denver. “In the absence of such purchases, the economy would now be close to deflation.”

Yellen gave the most detailed accounting yet of the benefits the central bank sees from its November decision to start a second round of asset buying, adding her voice to a defense of the policy by Chairman Ben S. Bernanke and other officials. Republican lawmakers and officials in China, Germany and Brazil have criticized the policy, saying it threatens to weaken the dollar and stoke asset-price bubbles.

Yellen, 64, appearing at the Allied Social Science Associations annual meeting, dismissed concerns that inflation will flare up, saying weak labor demand will be helpful in “mitigating the risk” and the Fed can “tighten policy when needed” by increasing the interest rate it pays on excess bank reserves.

She added that the Fed’s moves won’t hinder growth overseas, are having “only moderate effects on the foreign exchange value of the dollar,” and do not appear to be triggering “significant excesses or imbalances in the United States.”

Mortgage Debt

The central bank bought $1.7 trillion of mortgage debt and Treasuries through March 2010 as it sought to pull the U.S. out of the worst recession since the 1930s. On Nov. 3, the Federal Open Market Committee decided to buy $600 billion of Treasuries through June in a policy known as QE2 for a second round of quantitative easing.

“For sure, we saved a lot of jobs with QE1 and we’re saving jobs with QE2,” said Allen Sinai, president and chief executive officer of Decision Economics Inc. in New York, referring to the two large-scale rounds of asset purchases. “She and I probably disagree on the number.”

In her assessment of the economic impact of the purchases, Yellen cited a paper by four Fed economists that relied on the central bank’s main economic forecast model, known as FRB/US.

The simulation assumed the latest round of purchases is completed in a year, and that an elevated level of holdings is maintained for two years before being “unwound linearly over the following five years.”

Jobs Lost

It concludes that private employment is currently 1.8 million higher than it would have been without the policy and will get an additional boost of 1.2 million by 2012.

The economy has lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post-World War II era.