In a recent speech to the Futures
Industry Association, Chicago
Federal Reserve Bank president
Michael Moskow pretty much
dashed the hopes of those hoping
the Fed will either take a temporary
pause or even stop altogether its
“measured pace” of interest rate
increases.        The Chicago Tribune quotes
Moskow: “I’m concerned about core
inflation running at the upper end of
the range that I feel is consistent
with price stability. If Americans
start to see a string of higher infla-
tion numbers, households and busi-
nesses may begin to expect perma-
nently higher inflation, thus igniting
a potential inflationary surge. Even
without an increase in inflation
expectations, it will take appropriate
monetary policy to keep inflation
well contained.”        And so it came to pass. On
September 20, the Fed once again
bumped up the base rate of interest
from 3.5% to 3.75% - a move that re-
confirmed the notion that the US
economy is still on a positive track,
despite the shock, potential damage
to GDP growth and fluctuating eco-
nomic data. It also came as a
response to the fear that inflation would spike in the wake of the hurri-
cane, as oil operations were
slammed and prices ballooned.        Some had wanted the Fed to
pause to digest and assess the long-
term impact of the storm on the
economy before pursuing its anti-
inflation crusade.        But it’s worth remembering that
this is a Fed tightly focused on curb-
ing inflation, most notably from the
housing market. The US economy is
tough and dynamic, with an ability
to absorb shocks and return to “nor-
mal,” so the bankers viewed a fur- ther rate hike as manageable, even
in the wake of Hurricanes Katrina
and Rita.        That isn’t likely to continue much
longer, however. Bill Gross, the
highly-respected bond fund manag-
er at PIMCO, believes rates will hit
4% before the Fed brings a halt to
the monetary tightening. Quoted on
Marketwatch.com, Gross states:
“We look for a slow-growth econo-
my over the next few quarters with
still moderate inflation and the Fed
stopping at 4%.” However, although
the hurricane-related inflationary
spikes seen in energy prices and
probably consumer spending are
likely to be temporary, short-term
shocks, inflation could yet creep
higher later on as the full impact of
the storms sinks in.        For the meantime, though, with
the Fed still rigidly pursuing its
“measured pace” of interest rate
hikes, shorter-term investments still
offer the best upside in terms of
returns on your money. In particular,
yields on three-month and six-
month CD’s have risen recently,
while longer-term yields have
remained flat or actually declined.        Here’s a table showing some of
the best rates: 10 strong results on a monthly basis—
even when many consumers were in
wallet-tightening mode.        One winner I see this holiday
season is Nordstrom Inc. (JWN:
NYSE)—a stock that, when the going
got tough during the last poor festive
period, still enjoyed a respectable
5.7% gain. The company has posted strong results going into the holiday
season. From its current price around
US$35, I’ve set a price target of
US$40 by the end of the year.        Buy the Nordstrom January 30
Calls (JWN AF) under US$6.00.
Current bid/ask is US$5.50 to
US$5.60. A move up to US$40.00
could make them worth around US$10.10, good for a 68% gain.        Remember: Retail stocks typically
take a dive in January/February, so
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sign you up. Next A U T O M A T I C   W E A L T H With Federal Reserve still rolling along at
“measured pace,” lock in a healthy, short-
term, risk-free rate today by Martin Denholm With the Fed still rigidly pursuing its “measured pace”     of interest rate
hikes, shorter-term     investments still
offer the best upside in terms of return on your money