I need help! I am doing a paper for my Finance seminar and I have to develop a market forecast based on 2004 data, current data and predict for the next few years. I just wanted to get some ideas from people and bounce out some ideas thatI have so far.

In the summer of 2004, the Fed started to raise the Fed Funds rate. Am I correct to assume that since the yield curve was fairly steep in early 2004, this was to protect against inflation? I know that the short term rates were low because of the mostly stagnant economy in 2001-2003.

They have increased the funds rate 5 times in 2004 and once so far in 2005 and now the yield curve has flattened out a lot. I know that currently the yield curve is not "flat" but it isn't "normal" either. Is this flattening due to a scare of inflation?

If theoretically I am to be building a fixed income portfolio, with the yield curve flattening, do I want to invest in short-term bonds as to be able to reinvest the coupon payments into higher yield, short bonds; or do I worry that the bottom may fall out of the bond market (increased inflation) and I should lock in a longer rate.

If anyone can help, I really appreciate it. Just trying to get some insight as to whether or not I am on base here.