The rates the Fed does and doesn't control

Summary

Marketplace Morning Report: The Rates the Fed Does and Doesn't Control
Released on July 25, 2025

In this episode of Marketplace Morning Report, host Sabree Benishore delves into the intricate dynamics between the Federal Reserve's control over interest rates and the Trump administration's aggressive tariff policies. The discussion provides listeners with a comprehensive understanding of how these economic mechanisms interact and their broader implications for the U.S. economy.

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Federal Reserve's Influence on Interest Rates

Sabree Benishore opens the episode by addressing President Donald Trump's persistent efforts to persuade the Federal Reserve to lower interest rates. This pressure stems from the belief that reduced rates would lower government borrowing costs, thereby saving taxpayer money. However, the Federal Reserve remains cautious, prioritizing economic stability over political demands.

Nancy Marshall Genser, an expert from Marketplace, clarifies the scope of the Federal Reserve's authority over interest rates:

"The Federal Reserve only controls short-term interest rates, specifically the rate banks charge each other for overnight loans. The fate of longer-term rates? That's in the hands of global investors."
[01:50]

Genser further explains that while the Fed can influence short-term rates, long-term rates, such as those for mortgages and car loans, are determined by global market forces and investor expectations about inflation. She highlights a recent scenario where the Fed lowered short-term rates multiple times in December, yet the 10-year Treasury yield surged to nearly 5% by January—a movement contrary to both the Fed's and President Trump's preferences.

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The Federal Reserve vs. Treasury Yields

The discussion emphasizes that long-term interest rates are not directly controlled by the Federal Reserve. Instead, they are influenced by global investment trends and investor confidence in the economy's future, particularly concerning inflation. This distinction is crucial for understanding why efforts to sway the Fed may not immediately impact long-term borrowing costs.

Nancy Marshall Genser provides a concrete example:

"Sometimes the Fed will cut rates and Treasury yields go up. This happened just last fall. The Fed lowered rates several times, most recently by a quarter percentage point in December. But by January, the 10-year Treasury yield was up to almost 5%, not what the Fed or the incoming President Trump wanted."
[01:50]

This scenario underscores the complex interplay between central bank policies and market-driven interest rates.

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Trump Administration's Tariff Policies

Transitioning from monetary policy, Sabree Benishore shifts focus to the Trump administration's recent trade maneuvers. The administration has introduced new tariffs targeting specific countries and industries, a move aimed at reshoring production and protecting domestic jobs.

Benishore outlines the specifics:

• Country-Specific Tariffs:

  • Japan: 15% tariff
  • Indonesia and the Philippines: 19% tariff each

• Industry-Specific Tariffs:

  • Steel, Aluminum, Copper: Existing and potential tariffs
  • Pharmaceuticals and Semiconductors: Potential future targets

These tariffs are part of a broader strategy to address trade imbalances and reduce dependence on foreign manufacturing.

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Expert Insights on Tariff Implications

To unpack the potential economic ramifications of these tariffs, Sabree interviews Doug Irwin, Professor of Economics at Dartmouth College. Irwin provides a nuanced analysis of the administration's tariff strategy.

Differences Between Tariff Types

Irwin explains that while both country-specific and industry-specific tariffs aim to protect domestic interests, their economic consequences can vary based on implementation:

"I'm not sure they would be different in terms of their consequences, but their implications are very different, depending on the industry or depending on where you're sourcing from."
[04:54]

He highlights that industry-specific tariffs, such as the proposed 50% tariff on imported copper, affect all sources uniformly, regardless of the country of origin. This approach contrasts with targeted tariffs, which can lead to specific countries facing higher duties, encouraging businesses to reroute their supply chains to avoid increased costs.

Legal Challenges and Sustainability

Addressing the legal robustness of these tariffs, Irwin notes:

"The reciprocal tariffs that were announced on April 2 and have been paused, those have been challenged in courts... They ruled unanimously against those reciprocal tariffs. Now of course, that's being appealed and it might even go to the Supreme Court. We don't know whether those tariffs will survive."
[06:05]

This indicates a significant uncertainty regarding the longevity of country-specific tariffs, as they face judicial scrutiny and potential reversals.

Economic Goals and Job Creation

When questioned about the effectiveness of tariffs in reshoring production and creating jobs, Irwin provides a tempered perspective:

"In some cases like copper, it's going to take years and years to make new investments and new mines to dig out the copper deep under the earth. So we might not see any jobs initially, but there might be plans for investments."
[07:09]

He further elaborates that many of the affected industries are capital or technology-intensive, meaning that increasing domestic production may not result in significant job growth:

"To take steel, for example, today it's pretty much been automated and mechanized technology has taken over so we can increase steel production in the US but it's probably going to mean we're going to use existing plants and existing equipment or bring on new technology that won't create a lot of jobs per se when we increase output."
[07:52]

This insight suggests that while tariffs may achieve certain economic objectives, their impact on employment may be limited, especially in highly automated sectors.

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Conclusion

The episode provides a comprehensive overview of two pivotal economic issues: the Federal Reserve's role in regulating interest rates and the Trump administration's aggressive tariff policies. Through expert interviews and detailed explanations, Sabree Benishore elucidates the complexities and potential consequences of these policies, offering listeners a balanced perspective on their effectiveness and long-term implications for the U.S. economy.

Listeners gain valuable insights into:

• The limited scope of the Federal Reserve's influence over long-term interest rates.
• The intricate relationship between short-term rate adjustments and long-term economic outcomes.
• The strategic objectives and legal challenges associated with the administration's tariff initiatives.
• The realistic expectations regarding job creation and industrial growth resulting from increased tariffs.

For those seeking to understand the current economic landscape and the forces shaping it, this episode of Marketplace Morning Report serves as an essential resource.

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Produced by Nancy Fargali, with contributions from Antoinette Brock, Emily McCune, and Dylan Yetinen. Engineered by Brian Allison and Rachel Brees.

Transcript

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[Sabree Benishore]

The interest rates, the Federal Reserve controls, and a whole lot that it does not From Marketplace I'm Sabree Benishore in for David Brancaccio. President Trump has been pushing the Federal Reserve to lower interest rates, and he did so again yesterday when he paid an in person visit to the Fed. Lower interest rates would save the government money on borrowing, but so far the Federal Reserve has not determined that lower rates would be good for the economy. And one other detail the Fed doesn't actually directly control the interest rates. The President is concerned about the rates on treasury bonds and notes. Marketplace's Nancy Marshall Genser has that the.

[Nancy Marshall Genser]

Federal Reserve only controls short term interest rates, specifically the rate banks charge each other for overnight loans. The fate of longer term rates? That's in the hands of global investors. They're always looking to the future. If they think inflation is heading up, they're going to demand a higher interest rate on treasury bonds as a cushion. Fed independence is important to them. They want to be sure the US Central bank is setting interest rates based on what's best for the economy and not lowering borrowing costs because that's what the President wants it to do now. Interest rates for mortgages and car loans are closely linked to the raid on the 10 year treasury bond, which when that yield goes up, mortgages and car rates do too. Sometimes the Fed will cut rates and treasury yields go up. This happened just last fall. The Fed lowered rates several times, most recently by a quarter percentage point in December. But By January, the 10 year treasury yield was up to almost 5%, not what the Fed or the incoming President Trump wanted. I'm Nancy Marshall Genser for Marketplace intel.

[Sabree Benishore]

Says it has laid off 15% of its workforce, as it had planned to do starting last quarter. It's also canceling plans for factories in Germany and Poland, slowed construction and factory in Ohio.

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This Marketplace podcast is supported by Mercury. Mercury offers banking and financial software to help businesses send money, create invoices, pay bills and more all in one place. Learn [e-mail] this Marketplace podcast is supported.

[Rima Reis]

By Palo Alto Networks. Listen to threatvector, the Palo Alto Networks podcast, for in depth discussions with industry leaders and experts providing crucial insights for security decision makers. Whether you're looking to stay ahead of the curve with innovative solutions or understand the evolving cybersecurity landscape, ThreatVector equips you with the knowledge needed to safeguard your organization. Tune in and subscribe to threatvector wherever you get your podcasts.

[Sabree Benishore]

The Trump administration announced new trade arrangements with individual countries this week. Japan, Indonesia, the Philippines. The deals all involve new tariffs placed on goods from these countries 19% for Indonesia and the Philippines, 15% for Japan. But meanwhile, the administration has also placed or is preparing to place import taxes not on countries, but specific goods worldwide. Steel, aluminum, copper, with plans for pharmaceuticals and potentially semiconductors. Let's take a closer look with Doug Irwin, professor of Economics at Dartmouth College. Good morning.

[Doug Irwin]

Hey, nice to be with you.

[Sabree Benishore]

Under the current administration, there are two types of tariffs. There's the tariffs on goods from countries, specific countries, and then there's tariffs on industries. Do one or the other of those carry more economic consequences than the other?

[Doug Irwin]

I'm not sure they would be different in terms of their consequences, but their implications are very different, depending on the industry or depending on where you're sourcing from. The administration is considering a 50% tariff on imported copper. So what's interesting about that is we get much of our copper from Peru, Chile and Canada. We have free trade agreements with all of those countries. So the 50% tariff is across the board. It doesn't matter where you're importing copper from, but will hit those three countries in particular now with the cross country tariffs. So for example, we're considering duties against Lesotho at very high levels and a lower duty on goods coming from South Africa. Well, if you're a textile producer in Lesotho, what you would probably want to do is just ship your goods to South Africa and then ship them to the US to avoid the very high tariff on Lesotho goods, basically calling your goods South African goods.

[Sabree Benishore]

The country specific tariffs, the ones that we're about to get, they have been challenged in court and the next court date on These, I believe, is July 31st. How real of a possibility is that those country specific tariffs could go away or be diminished in some way because of some legal ruling?

[Doug Irwin]

You're absolutely right. The reciprocal tariffs that were announced on April 2 and have been paused, those have been challenged in courts and, and in particular the Court of International Trade, which is a special tribunal in New York City that just hears these very narrow cases on trade policy. They ruled unanimously against those reciprocal tariffs. Now of course, that's being appealed and it might even go to the Supreme Court. We don't know whether those tariffs will survive. But let me just contrast that just briefly with the industry tariffs. Those are usually under different statutes of the law that allow the President to raise tariffs on particular goods if there's say, national security justification for them, if those foreign products have been dumped or subsidized and they're selling them to the US and so those are on much firmer ground legally.

[Sabree Benishore]

The goals of these tariffs are hard to pin down. You know, some days it's to raise revenue, some days it's to bring back production and jobs. How likely is it that we would reshore production of these industries and get a net gain of jobs?

[Doug Irwin]

In some cases like copper, it's going to take years and years to make new investments and new mines to dig out the copper deep under the earth. So we might not see any jobs initially, but there might be plans for investments. Another factor here is that a lot of these industries are not going to bring back a lot of jobs if we stop imports because they're very capital intensive or they're very technology intensive. So to take steel, for example, today it's pretty much been automated and mechanized technology has taken over so we can increase steel production in the US but it's probably going to mean we're going to use existing plants and existing equipments or bring on new technology that won't create a lot of jobs per se when we increase output.

[Sabree Benishore]

Doug Irwin is Professor of Economics at Dartmouth College. Thank you so much.

[Doug Irwin]

You're most welcome.

[Sabree Benishore]

Our executive producer is Nancy Fargali. Our digital team includes Antoinette Brock, Emily McCune and Dylan Yetinen. Our engineers are Brian Allison and Rachel Brees. And in New York, I'm Sabri Benishore. And you are listening to the Marketplace.

[Doug Irwin]

Morning report.

[Sabree Benishore]

From APM American Public Media.

[Rima Reis]

Hey everyone, I'm Rima Reis and I'm excited to join Kimberly Adams on Make Me Smart. Together we'll unpack the day's news, whether it's a tariff switch up the latest on Trump's immigration policy or the future of clean energy. Join us each weekday so we can make sense of it all together, because none of us is as smart as all of us. Listen to Make Me Smart. Wherever you get your podcasts.