At least one rising congressman, Rep. Mark Kirk of Illinois, is raising an alarm about the Federal Reserve's ability to protect the dollar and maintain the Fed's own inflation-fighting capacity. At the root of his concern, he says, is the Fed's new role as "one of the largest bondholders in the world."

Fed Chairman Ben Bernanke has been piling up purchases of "mortgage-backed" securities to keep money flowing into the housing market. Though the Fed recently said it would slow its buying, the central bank now sits on a giant portfolio worth $650 billion. Here's the problem: If the Fed decides to raise interest rates to combat inflation, even a small hike would likely knock billions of dollars off the value of the Fed's holdings.

Mr. Kirk estimates that if rates go up two percentage points -- a plausible scenario given short-term rates are near zero now -- the Fed could lose $100 billion from its own balance sheet. The danger is that the mere existence of such a concern could become a self-fulfilling prophecy if the markets doubt the Fed would endanger its own financial welfare to fight inflation.