The U.S. Federal Reserve on Tuesday moved forward aggressively with an effort to drive down mortgage costs, setting a goal of buying $500 billion in mortgage-backed securities by mid-2009.

The Fed will only purchase fixed-rate mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers.
The central bank said it would start buying the securities in early January under a program announced last month. When it announced the program, mortgage rates dropped in anticipation of the purchases.
The mortgage-buying program is part of a sustained government effort to help the United States withstand a severe credit crunch and deep housing downturn that have tipped the economy into recession and damaged activity around the globe.
The Fed said it will pay for the purchases by creating more bank reserves -- essentially printing money.
Earlier this month, the Fed cut benchmark U.S. interest rates close to zero and signaled that it was turning more heavily to unconventional measures to spur the economy.
On Tuesday, it said it would increase the money supply to make the MBS purchases, effectively easing monetary policy further.