There are three big signs that the Fed is close to scaling back its bond purchases.

First, Philadelphia Fed Chairman Huck said yesterday that it was time to consider reducing the size of bond purchases, which was in line with Federal Reserve Chairman Colin Powell's policy of avoiding raising interest rates.

Second, the Fed announced on Wednesday that it would start selling corporate bonds it bought last year through an emergency loan facility, albeit with a total size of just $13.6 billion, but it was a hint of greater action by the Fed.

Third, the latest beige book released by the Federal Reserve points out that the upward pressure on prices is increasing, and the Federal Reserve is expected to signal a reduction in bond purchases within two weeks.