Bullard urges Europe to act to prevent `meltdown'

Euro-zone crisis has caused "tremendous flight to safety," Fed St. Louis president Bullard says
Says current Fed policy offers the "right trade-off" between meeting economic forecasts and policy side effects
Says BOJ's quantitative easing policy will help achieve its 1% inflation target
TOKYO
The president of the Federal Reserve Bank of St. Louis, James Bullard, said Thursday that European policy makers must offer "vision and rapid action" to prevent the crisis in Europe from turning into "a major meltdown for the world economy."
"It's a grave situation indeed," Bullard told reporters in Tokyo after attending a conference hosted by the Bank of Japan, as deepening worries about the financial woes in Europe rocked Asia's financial markets Thursday
The European situation "is driving U.S. and Japanese equity markets down," he said "It has also caused a tremendous flight to safety, which has sent government bond yields here (in Japan) and the U.S. and in Germany to record lows."
Bullard said that a "financial meldown" in the euro zone would have a "significant impact" on the rest of the world, including the U.S. and Asia, and pointed to a slowdown in Chinese exports as evidence that the impact of the crisis is already being felt
"I have been a little bit concerned about the slowdown in Asia, and weaker data coming out of China," he said
Bullard said that policy makers in troubled European nations must present a plan to take control of their fiscal problems, adding that the European Central Bank can only provide temporary relief through its monetary policy of injecting liquidity
"No amount of money printing or extra borrowing by others in the European Union is going to fix this problem. The only thing that will fix this problem is the actual governments facing up to their own situations."
On the U.S., Bullard said he was comfortable with the current state of the Federal Reserve's monetary policy, noting that U.S. economy is on its way to meeting the bank's forecasts for growth and employment: 3% growth for 2012 and a jobless rate of 6.8% by the year-end
He did say, however, that the Fed would return to quantitative easing even at the risk of bloating its balance sheet if the outlook changes significantly
"I do think our most potent weapon as a committee is to do further quantitative easing
But if we take such action, we'd be taking more risk with our balance sheet
 I think right now we've got the right trade-off."
Quantitative easing, he said, is also an effective step for the Bank of Japan to fight persistent deflation in Japan. His view, he said, is based on the Fed's success in beating deflation and generating inflation expectations in the U.S. with its own unconventional policy steps implemented between November 2010 and mid-2011
"I think a quantitative easing policy in Japan will allow the Bank of Japan to achieve the 1% goal that they have set for themselves. This will take the Japanese out of the deflationary situation they have been in for some time," the Fed governor said