QUESTIONS ABOUT THE FLATTENING U.S. YIELD CURVE

I think that I saw interest rate data on CNBC this morning suggesting that the yield curve in the United States has been flattening when looking at federal government debt instruments with relatively short terms to maturity.  The difference between the interest rate on the two-year U.S. Treasury note and the interest rate on the five-year U.S. Treasury note (in this case, the five-year rate minus the two-year rate) has fallen to less than +0.060 percentage points, based on my calculations.  What does this yield gap indicate about expectations for future interest rates?  What does this suggest for future U.S. economic growth?  Will this impact the Federal Open Market Committee's decision on whether or not to change its federal funds rate target?

My understanding is that more focus is placed on the difference between the two-year U.S. Treasury rate and the ten-year U.S. Treasury rate.  However, could the slope of the yield curve based on the two-year rate and the five-year rate growing less steep indicate that the difference between the two-year rate and the ten-year rate will flatten relatively soon?

From an expectations theory perspective alone (so that there is no liquidity premium required for longer terms to maturity), the yield curve growing less steep between the two-year and five-year time horizons indicates that market participants anticipate a smaller increase in interest rates over that time horizon than before.  However, if lenders require a liquidity premium for longer-term loans, then could this narrow difference between interest rates suggest that market participants already expect a decrease in future short-term rates for loans that will be made two years from now?  If so, then does that imply that market participants are forecasting a growth slowdown or a recession in the United States?

(Readers may consider money and banking textbooks such as those by Mishkin (2004) and Burton and Lombra (2006) for more information about expectations theory and the liquidity premium.  They can also consider such sources for more about preferred habitats and the segmented markets theory as they may also relate to interest rate determination.)