The Fed announced on Tuesday that they will reinvest money from expiring mortgage backed securities into longer term U.S. Treasurys. At present these securities would have shrunk the Fed’s balance sheet. The reinvestment into Treasurys signals that the Fed is comfortable with spending more money for a longer time.

Some Fed workers worry that they can’t drive down asset rates from already super low levels – last week the 30 year mortgage rate dropped to 4.49%, its lowest since the 1950′s. With short term rates near zero, it’s harder to combat deflation than inflation, which can be fought with raised rates.

While infrastructure repair is needed, both for our country’s aging bridges and roads and the millions of out of work construction workers, it means more spending, which conservatives are wary of. Many are just concerned about reducing long term debt, and leaving the current problem to recover slowly. But Mr. Bernanke knows best.

In the 1990′s as a professor at Princeton, he advised Japan to set an inflation rate of 3 to 4%, which would mean that the cost of borrowing would fall. This is because interest rates were at zero, and the real cost of borrowing is rates minus inflation, which would theoretically spur demand. But since deflation hasn’t yet started, it’s not quite time for this.

For now, we’re still playing the waiting game.