Withdrawing Monetary Stimulus

Can the Fed reverse monetary policy fast enough should signs of significant inflation appear? In a recent 60 Minutes interview, Fed chairman Ben Bernanke said that he was '100%' confident of the Fed's ability to withdraw stimulus.

But inflationary signals are already surfacing, and some commentators doubt the Fed's responsiveness based on historical track record.

One thing working against the Fed is the considerable time lag between policy changes and outcomes. In other words, once policymakers recognize the need to reverse course and take corrective action--it may be many months before that corrective action takes effect.

One question market participants must ponder is: Given the size of the stimulus injected into the financial system, how likely is it that central bankers can withdraw the stimulus in time?