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WASHINGTON (MNI) - The following are excerpts from the Federal Open
Market Committee minutes of the December 12 - December 13 meeting,
Meeting participants also discussed the recent narrowing of the gap
between the yields on long- and shortmaturity nominal Treasury
securities, which had resulted in a flatter profile of the term
structure of interest rates. Among the factors contributing to the
flattening, participants pointed to recent increases in the target range
for the federal funds rate, reductions in investors estimates of the
longer-run neutral real interest rate, lower longerterm inflation
expectations, and lower term premiums. They generally agreed that the
current degree of flatness of the yield curve was not unusual by
historical standards. However, several participants thought that it
would be important to continue to monitor the slope of the yield curve.
Some expressed concern that a possible future inversion of the yield
curve, with short-term yields rising above those on longer-term Treasury
securities, could portend an economic slowdown, noting that inversions
have preceded recessions over the past several decades, or that a
protracted yield curve inversion could adversely affect the financial
condition of banks and other financial institutions and pose risks to
financial stability. A couple of other participants viewed the
flattening of the yield curve as an expected consequence of increases in
the Committees target range for the federal funds rate, and judged that
a yield curve inversion under such circumstances would not necessarily
foreshadow or cause an economic downturn. It was also noted that
contacts in the financial sector generally did not express concern about
the recent flattening of the term structure.
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