….why is the Fed going to such an extreme when the economy might be improving? The answer is the US housing market. Mortgage rates have fallen further than treasury yields, making houses more affordable than ever, but house sales remain depressed. If housing stays moribund, this will have two serious negative effects.
First, there will be more defaults, and thus more damage to banks’ balance sheets. Note that the Fed is buying shorter-dated bonds, which helps banks, whose business is to borrow in the short term and lend in the long term.
Second, people will continue not to be ”“ or feel ”“ rich, and hence will not spend much….
Alas, it is a bad idea. But since many have decided that direct government spending is worse, the Fed is doing what it judges as reasonable.