I have also been pondering how the Fed will combat rising prices when it commences myself. Like you I have deduced that the Fed may be the last buyer (in quantity) left standing for USG debt hence it cannot sell those. Everything else on its balance sheet is subprime so who is going to buy that? The only option it has left is to increase the reserve requirements of banks and lock up the excess reserves in bank vaults. Of course it does not have to worry about this until credit starts expanding again in the private sector, and who knows when that will be?