The US Federal Reserve on Tuesday is reported to be aggressively moving ahead on a plan to drive down mortgage costs, setting a goal of acquiring $500 billion in mortgage-backed securities by mid-2009.

The US central bank was reported to have said that it would start buying securities in early January. Mortgage rates had dropped in anticipation of the purchases when the programme was announced around a month ago.

Analysts were reported as saying that they were surprised with the zest the Fed pledged to act, and the news propped up prices for mortgage-backed securities in very thin trades. Some said that buying was averaging between $80 and $100 billion per month, and going by the Fed's renewed plan, it would have to buy practically everything that it could find. That move would also drive up prices, tighten spread, and drive down primary mortgage rates.

The Fed has selected investment managers BlackRock, Goldman Sachs Asset Management, PIMCO, and Wellington Management to implement the programme, which is part of a sustained government effort. It is said to be aimed at helping the US defy a severe credit crunch and deep housing downturn that is responsible for pushing the country's economy into recession, and creating a ripple effect in the global economy as well.

Earlier in December, the Fed reduced benchmark US interest rates to almost zero, and indicated its change of strategy towards unconventional measures to stimulate the economy. At the start of this week, it also announced an easing of money supply that would be leveraged to make the mortgage back securities purchases.

The programme includes only securities issued by government-sponsored mortgage enterprises Fannie Mae and Freddie Mac, and those by government loan financier Ginnie Mae. In a statement, the Fed said that the gola of the programme was to "provide support to mortgage and housing markets and to foster improved conditions in the financial markets generally." The government took over Fannie Mae and Freddie Mac in September.

As per its announcement of 25 November, the Fed would acquire up to $100 billion in debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. It now aims to adjust the rate of its purchases to suit changing market conditions and the impact of the programme.

Reduction in the cost of credit, and increasing its availability to support housing markets are amongst the stated objectives of the programme. The Fed said it needed investment managers to effectively manage the programme on account of its size and complexity.