In such a case, all else equal, a tighter monetary policy might be preferred. On the other hand, if the decline reflects investors' views of a weaker path for the economy the more typical interpretation of a flat or inverted yield curve - policymakers might prefer a more accommodative monetary policy.
Given the complexity of the signal-extraction problem, we should approach our task with considerable humility. We recognize that financial assets prices reflect the collective views of market participants. They may reflect not only changes in expected paths and uncertainty about those paths but also shifting relationships, changes in investor risk preferences, and developments in the structure of various securities markets.