For generations on Wall Street, it has been an unspoken truth: the Federal Reserve operates under a "dual mandate" - maintaining price stability and achieving full employment. This mandate has determined how the Fed sets interest rates, a principle consistently followed from Alan Greenspan to Jerome Powell. Therefore, when Stephen Miran, Trump's nominee for Fed governor, mentioned a third objective - that the Fed must also "maintain moderate long-term interest rates" - analysts began examining its implications and potential impacts.

In fact, the "third mandate" Miran referenced represents the Fed's traditional third objective. Andrew Brenner, head of international fixed income at NatAlliance Securities, stated that this move has obvious - and concerning - implications for financial markets, as it could potentially upend portfolios.

Brenner believes that Miran's mention of the "third mandate" in congressional testimony, having gained fame through the "Mar-a-Lago Agreement" and now becoming a Fed official, represents the clearest sign yet that the Trump administration intends to use monetary policy to influence long-term bond yields, using the central bank's own charter as cover. This also highlights Trump's efforts to break decades of institutional norms to undermine the Fed's long-standing independence in service of his own objectives.

In a September 5th report, Brenner wrote: "The Trump administration 'found this provision in the Fed's original documents, which is not clearly articulated and allows the Fed to have greater influence on long-term rates.' This is not the current trading strategy, but it's certainly worth considering."

Currently, no such policies are being implemented, nor are they needed in the near term, as U.S. bond yields across all maturities are gradually declining to their lowest levels of the year, while deteriorating employment markets are paving the way for further Fed rate cuts. Additionally, recently, the "third mandate" has been viewed more as a natural result of the inflation control management process.

However, some investors say they are already paying close attention to long-term rates and have factored in the possibility of taking some action when evaluating bond markets. Others warn that if unconventional measures to limit long-term rates gradually become part of policy, it could bring adverse effects, particularly inflation, making debt management and the Fed's work more difficult.

While the Fed's short-term target rate setting process often receives attention, what determines the interest levels Americans pay on trillions of dollars in mortgages, corporate loans, and other debt are actually the longer-term U.S. Treasury yields set in real-time by traders worldwide.

Treasury Secretary Bessent frequently emphasizes the importance of long-term rates to the U.S. economy and housing cost issues. Like Miran, Bessent recently cited the Fed's three statutory objectives in an op-ed and criticized the central bank's "overreach."

**Portfolio Implications**

Deutsche Bank's Americas fixed income head George Catrambone suggests that a potential trigger for action might be a situation where long-term rates remain persistently high despite multiple Fed rate cuts.

Catrambone stated: "Whether the funding comes from Treasury, or is supported by the Fed, or both, they will achieve this goal in some way, and this response mechanism will ultimately come into play."

In recent months, he has been converting maturing short-term U.S. Treasuries into 10-year, 20-year, and 30-year bonds, acknowledging "this is a position contrary to mainstream views."

Among the possible measures mentioned in bond markets aimed at lowering or at least limiting longer-term rates include: the U.S. Treasury issuing more short-term bonds and increasing repurchase operations for longer-term bonds. More aggressive measures would involve the central bank purchasing bonds as part of quantitative easing, though Bessent has detailed what he considers the negative impacts of past Fed QE policies. However, the Treasury Secretary supports implementing QE in "genuine emergencies."

Another option would be Treasury working in conjunction with the Fed's balance sheet to absorb longer-term bond issuance. While this possibility has become very remote, should ultimate buyers intervene and cap rates, it would undoubtedly increase the risks of betting against long-term bond market declines, at least to some extent.

PIMCO Chief Investment Officer Daniel Ivascyn stated: "If a less independent Fed decides to restart quantitative easing, you will suffer significant losses on the yield curve; or if the U.S. Treasury becomes more aggressive in yield curve management, the same will happen."

The bond giant still maintains underweight positions in long-term bonds, though it has taken profits from positions designed to benefit from excellent performance in short-term securities, which have been very beneficial to its best-performing funds this year.

**Current Context Doesn't Apply to "Third Objective"**

The Trump administration's attempt to lower long-term rates would replay past scenarios, particularly during and after World War II. As early as the early 1960s, the Fed implemented "Operation Twist," a measure aimed at lowering long-term rates while keeping short-term bond issuance unchanged.

During the worst of the global financial crisis, the Fed began large-scale purchases of mortgage assets, later expanding to U.S. Treasuries to lower long-term rates and stimulate the economy. By 2011, the Fed launched another form of "twist operation." In comparison, earlier quantitative easing policies were much smaller in scale. During the COVID pandemic, the Fed purchased massive amounts of corporate bonds, far exceeding any previous period.

Gary Richardson, economics professor at UC Irvine and Fed historian, stated: "In the past, the Fed has indeed done what Trump is now trying to do, and Congress has allowed the Fed to do so." But this mainly occurred during wartime or economic crises.

He said: "These conditions don't apply now. We are not in a major war, nor are we experiencing a severe economic recession. Now, it's just like Trump wants to do this."

If Treasury and the Fed take more aggressive measures to suppress long-term rates, it might backfire, especially with inflation remaining persistently high and above target levels, as institutions like the Carlyle Group have warned.

The Trump administration's prospects for driving economic development through more stimulus measures pushed 10-year U.S. Treasury yields to this year's peak of 4.8% in January.

More broadly, there's also the question of how to define "moderate long-term rates." By historical standards, current U.S. 10-year Treasury yields near 4%, even at this year's highs, are far below the 5.8% average since the early 1960s. Data suggests this situation indicates no need for any special policy measures.

Potomac River Capital Chief Investment Officer Mark Spindel stated: "What 'moderate' actually means for a number is really difficult for me to define, but it's somewhat like a 'Goldilocks' just-right situation. We've neither set it too high nor too low."

For Spindel, the vague language around medium and long-term rates means this rate level could be used to "justify almost anything." He says he's buying short-term Treasury Inflation-Protected Securities (TIPS) to guard against the risk of the Fed losing independence, so when the Fed becomes politically colored, he can "have protection against inflation."

As government deficits continue to balloon, lowering rates across the entire yield curve would help reduce financing costs for the growing debt burden. According to collected data, as of September 9th, total U.S. debt reached $37.4 trillion. The latest budget extending Trump's tax cuts is expected to continue maintaining U.S. budget deficits at high levels exceeding 6% of GDP.

Bessent has followed former Treasury Secretary Yellen's approach, attempting to increase short-term bond sales while keeping long-term bond sales unchanged, stating that current yield levels are not favorable for taxpayers selling long-term bonds.

LongTail Alpha founder Vineer Bhansali stated: "Debt and debt servicing costs constrain the government, and they must take measures to address this, but they cannot intervene at the fiscal level. So they must act at the Fed level, as this is currently the only viable option. Now, having the Treasury Secretary manipulate long-term rates toward lower levels is inevitable."

Bhansali noted that for those worried about accelerating inflation, this risk seems to be one the government is willing to bear. "The Fed will ultimately act according to the President's and Treasury's wishes - even if it means higher inflation levels."