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.

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.

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.

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.

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.

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.

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