Donald Trump’s Chicken-and-Egg Inflation Problem

Just in: Lawyers for Elon Musk said he’d withdraw his $97.4 billion bid for control of OpenAI if the company halted its efforts to become a for-profit enterprise. More below.

Separately: You might recall that several years ago I wrote a series of columns, following a raft of mass shootings, that inspired the creation of a “merchant category code” for gun retailers so credit card companies could better identify suspicious activity the way they already did to help prevent money laundering and sex trafficking.

Well, this week Representative Riley Moore, Republican of West Virginia, introduced a bill to make it illegal for credit card companies to require “merchant category codes that distinguish a firearms retailer from general-merchandise retailer.” That means gun retailers would be able to mask what they sell. What do you think of what’s happening?

Scrambling Trump’s economic plans

President Trump inherited a strong economy with booming labor and stock markets. But one economic holdover could tie his hands: stubbornly strong inflation.

Investors are already getting antsy, with stock markets briefly plunging and the bond market suffering its worst day of the year so far after unexpectedly worrying revelations in the latest Consumer Price Index report. It raises questions about what options the White House and Fed would have to maneuver if prices continued to rise.

The latest: The C.P.I. data showed headline prices over the past three months running at an annualized pace of 4.5 percent — well above the central bank’s 2 percent target.

The yield on 10-year Treasury notes, which tend to underpin mortgage and credit card rates, spiked nearly a tenth of a percentage point following the release. (They’ve eased slightly this on Thursday.) Analysts have warned that the bond market could act as a brake on some of Trump’s policy ideas.

Not surprisingly, Trump has blamed resurgent inflation on his predecessor, Joe Biden.

But Trump will have to contend with a new inflation wild card: bird flu. Wednesday’s inflation report showed that the disease has hit the grocery aisles hard, sending egg prices up a staggering 15.2 percent in the past four weeks after a large-sale cull of the nation’s chickens.

The rise in egg prices is “the largest increase in roughly a decade and pushing annual prices up 53 percent,” Jeffrey Roach, chief economist at LPL Financial, wrote on Wednesday in a research note.

Persistent inflation could spoil Trump’s economic plans, which include tax cuts, an immigration crackdown and tariffs. Those policies “could all add to inflation as their effects ripple through the economy, causing the Fed to keep interest rates higher than they would have been under the status quo,” Bill Adams, the chief economist for Comerica Bank, wrote in a client note on Wednesday.

Trump’s desire for lower interest rates, which he called for again on Wednesday just before the C.P.I. report, is also at odds with most market watchers.

What will Jay Powell do? The Fed chair cited high inflation on Wednesday in saying that the central bank wants “to keep policy restrictive for now.” Powell sidestepped questions from lawmakers about Trump’s demand for lower rates and repeated that data would determine the Fed’s next move, a stance that’s bound to aggravate the president.

The odds of additional rate cuts have fallen significantly in the past week, with futures traders on Thursday seeing just one cut this year. “The Fed should stay on hold,” Aditya Bhave, an economist at Bank of America, told CNBC.

HERE’S WHAT’S HAPPENING

The Senate is likely to confirm Robert F. Kennedy Jr.’s nomination on Thursday. President Trump’s pick for health secretary, whose criticism of vaccines and his vow to “go wild” on health drew the ire of public health officials and some health care leaders, has steadily won over reluctant Republican lawmakers in recent weeks. The health care industry ultimately hasn’t fought hard against Kennedy’s nomination, because the costs of speaking out may be too high, Politico reports.

President Trump’s moves to end the war in Ukraine ripple through the markets. The dollar and the price of oil fell, while European stocks rose on hopes of an end to the conflict after Trump said he had spoken with President Vladimir Putin. Ukraine’s other Western allies rejected any peace talks that didn’t involve Kyiv, even as analysts said that President Volodymyr Zelensky faced an increasingly difficult hand.

JPMorgan Chase reportedly has started laying off employees. The cuts will number in the hundreds, according to Barron’s, and come after the lender enjoyed record profit and a soaring stock price over the past year. Separately, Blue Origin, Jeff Bezos’s rocket company, is set to lay off workers after the successful launch of its New Glenn rocket, Bloomberg reports.

A $400 million Cybertruck question

Elon Musk’s growing influence in the Trump administration has drawn scrutiny on how much his businesses benefit from his government work.

Those concerns have now extended to a potential $400 million government contract for Tesla that was discussed under President Joe Biden.

The latest: Drop Site News reported on Wednesday that a State Department procurement forecast initially listed a $400 million contract that was expected to be awarded to Tesla for armored Cybertrucks. It’s worth noting that the report was last revised in December.

After Drop Site News and The Times’s Jack Ewing reported on the State Department document on Wednesday, it was amended to remove any mention of Tesla. (The report now says “Armored Electric Vehicle.”)

On X, Musk said, “I’m pretty sure Tesla isn’t getting $400M. No one mentioned it to me, at least.” The Times notes that a contract would be split with other companies, including the armorer Armormax. It’s unclear whether the contract will go forward.

The incident underscores concern about Musk businesses’ ties to the government. The entrepreneur is leading an increasingly powerful cost-cutting initiative that is slashing through government agencies — some of which oversee his companies. Among the latest concerns is that his efforts to defang the Consumer Financial Protection Bureau come as X seeks to offer payment services.

A big question is whether those worries could end up costing Musk companies legitimate business.

Speaking of Trump’s moves to slash regulation, here’s a handy cheat sheet from The Times on those efforts, including the effective closing of the C.F.P.B. and retreats by the S.E.C. and other financial authorities on climate-related matters.

Elon Musk’s friends may not be in it just for OpenAI

Lawyers for Elon Musk said on Thursday that the billionaire would withdraw his $97.4 billion takeover bid for control of OpenAI if the A.I. start-up stopped efforts to become a for-profit corporation. (That maybe because the bid complicates that broader goal.)

Speaking of that offer: Its backers include big names like Baron Capital Group, Valor Management, Atreides Management and Jon Lonsdale’s 8VC. But their motivation for backing the bid may not be solely about in investing in OpenAI.

All of Musk’s backers also have investments in his other businesses, such as Tesla, SpaceX, xAI or Neuralink — and they want to continue to have access to invest in further rounds.

It also helps to have the ear of Musk, the richest man in the world who has a megaphone that reaches more than 200 million followers on his X platform. Not to mention his proximity to President Trump.

It is a form of soft power and access to Musk, whose companies have made his investors billions. It’s not clear if these backers have done any due diligence on the economics of OpenAI.

And if Musk’s lawyer is to be taken at face value, he said if the entrepreneur wins the business, OpenAI would return to its roots as an “open-source, safety-focused force for good.” That sounds like it would be less commercially focused.

OpenAI’s board of directors questioned the rationale of Musk’s bid, accusing him of hypocrisy in a court filing on Wednesday. The motivations behind the consortium’s offer could be relevant to OpenAI’s challenge.

For the investors, the cost of being part of the bidding group is close to nothing if it goes nowhere, and it keeps the backers in Musk’s good graces.

But the billionaire also likes to keep his investors happy, so if his acquisition of Twitter is any example, he may find ways to reward them: After X lost value, he started his own A.I. company, xAI, and gave investors in the social network 25 percent of the new business.

• In other OpenAI news: Josh Kushner, whose Thrive Capital led the start-up’s most recent fund-raising round, outlined a potential financial windfall for the company’s employees if they stayed, according to The Information.

A humanoid robot maker raises $350 million

Humanoid robots are increasingly at the vanguard of artificial intelligence, promoted by Elon Musk, Jensen Huang of Nvidia and others.

Now Apptronik, a start-up whose robot is being used in manufacturing by companies including Mercedes-Benz, is taking advantage of that increased interest, having collected $350 million in a new fund-raising round.

What to know about the round: It was led by the venture capital firm B Capital — whose chairman, the Renaissance Technologies co-founder Howard Morgan, is joining Apptronik’s board — and included Capital Factory, a Texas-based investment firm, and Google, whose DeepMind A.I. lab is also a tech partner to the start-up.

Jeff Cardenas, Apptronik’s co-founder and C.E.O., told DealBook’s Michael de la Merced that the company had started considering a fund-raising round a year ago.

It’s a major step up for Apptronik, a nine-year-old start-up spun out of the University of Texas at Austin. Its Apollo robot is meant to be a general-purpose automaton that can handle a wide variety of tasks in a factory, rather than specializing in one job like an arm.

Apptronik to date has raised $65 million and had been self-financed for its first five years “Until this round, we had more revenue than money raised,” Cardenas said. “We wanted to make sure we were scaling the right thing.

Apptronik is facing steep competition. Beyond Tesla and Nvidia, there’s no shortage of start-ups focused on robots, including Figure AI, Agility Robotics and Physical Intelligence.

But Cardenas pointed to the contracts with Mercedes and the logistics company GXO, as well as talks with dozens of potential customers, as signs that his business is growing.

Still, robotics needs a boost from more than investors. Cardenas described a global race to produce humanoid robots, with China trying to take the lead. To keep up, he argued, the United States needs to focus on innovations in A.I. software and on manufacturing capabilities.

“We don’t have a national robotics strategy,” Cardenas said.

THE SPEED READ

Deals

Artificial intelligence

• The start-up Anthropic reportedly projects that it will halve its cash burn this year, from $5.6 billion in 2024, and will collect up to $3.7 billion in revenue. (The Information)

• Shares in Alibaba surged after the company’s chair confirmed that Apple will use his company’s A.I. for iPhones in China. (CNBC)

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