The Marriner S. Eccles Federal Reserve Board Building in Washington, D.C.

Jabin Botsford | The Washington Post | Getty Images

The Federal Reserve is expanding its municipal bond buying program as part of its efforts to keep money flowing for cash-strapped local and state governments.

As part of its Municipal Lending Facility, the Fed is buying up to $500 billion worth of state and local government bonds. In an announcement Monday, the central bank said the facility now will buy debt from counties and states with populations of at least 500,000 and cities with 250,000 residents or more.

In addition, the Fed expanded the duration of the bonds it will buy from two years under the previous announcement to three years. The program is limited to investment-grade debt.

The Fed also said it will consider in the future buying revenue bonds. Officials “will continue to closely monitor conditions” in local and state government debt markets” as it determines whether to accept the revenue bonds, the announcement added.

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