One of the funny things about physics is that Newton’s third law of motion, the one that says that for every action there is an equal and opposite reaction, doesn’t necessarily mean that what goes up must come down. And it certainly does not apply to inflation. That’s a truth that has clearly been on the minds of Federal Reserve governors and Fed chair Jerome Powell as they wrestle with inflation in our haphazardly growing economy.
Data in this week shows that last month, consumer prices rose 3% from a year earlier, more than the 2.9% that economists were expecting. That may sound like a tiny move, but it’s a move in the wrong direction, and in Newtonian style, the overheating economy cooled the Fed’s enthusiasm for a rate cut. So why did things go awry? Call it anticipatory economics. Donald Trump was president for less than two weeks that month, but consumers and producers were already anticipating what he’d do. Ahead of Trump’s promised tariffs, companies and consumers have been stockpiling goods they fear may get more expensive, everything from steel to computer chips. That’s boosted the price of used cars and auto insurance for one, and then there’s eggs. Bird flu is killing tens of millions of laying hens, so the cost of eggs has more than doubled in the past few months. You know things are bad when Waffle House puts a 50-cent-an-egg surcharge on breakfast dishes. And while businesses may be talking up Trump’s economy, they’re voting with their pocketbooks: The U.S. economy added only 143,000 jobs last month, the Labor Department said Friday, a slowdown in hiring compared with November and December.
This is not what Trump promised when he said during his campaign that he’d roll back prices. In an interview this week, he evaded the question of how long it would take to bring prices down, and at a news briefing, White House spokesperson Karoline Leavitt said, “I don’t have a timeline” for bringing down prices. Even J.D. Vance, who famously posed in front of a supermarket egg display to decry Bidenomics, tried to temper expectations that consumer prices would be dropping anytime soon. “Rome wasn’t built in a day,” Vance told CBS News.
So if prices are up, where does that leave interest rates? Well, right where they are for the time being. “We do not need to be in a hurry to adjust our policy stance,” Powell told Congress on Tuesday. “We think our policy rate is in a good place, and we don’t see any reason to be in a hurry to reduce it further,” he said, noting that while price hikes are slowing in areas like housing, Trump’s sweeping proposals on immigration, tariffs, and taxes are keeping prices down. Trump has placed an extra 10% tariff on all Chinese imports and 25% taxes on imported steel and aluminum. Tariffs on Canada and Mexico are on hold but may still take effect. So when will interest rates come down so you can buy that new home? It’s gonna be a while.
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The Usual Suspects
- Steel there: The back and forth over who gets to buy embattled U.S. Steel seems to have shifted back to Japan’s Nippon Steel. The firm’s CEO, Eiji Hashimoto, is expected to meet Donald Trump next week after Trump said, following a meeting with Japanese Prime Minister Shigeru Ishiba, that he’d approve a deal with Nippon agreeing to take only part ownership in the Pittsburgh-based firm. It’s not at all clear who’d own the rest of the company, and Ishiba said later that just how much stock could be purchased and still keep the company American would be up to the talks between the two companies. “People in the U.S. have a deep-rooted pride in the fact that U.S. Steel was once the world’s largest steelmaker,” Ishiba said on on Japanese TV. “The key is whether American people will feel that the company remains fundamentally American.”
- Slowing Lyft: A slowdown in the growth of bookings for its rides sent Lyft shares down 9% after-market Tuesday, even as the shares had shot up 19% in the past 12 months. CFO Erin Brewer said fewer people were taking rides, and the rides were shorter. Rival Uber also saw a drop in ridership growth last quarter, sending its shares down. But Lyft says it’s on track to cut costs with the introduction of some 1,000 Mobileye-powered robotaxis in Dallas next year, financed by Japanese trading and investment firm Marubeni.
- Back to petroleum: Just days after news broke that Paul Singer’s activist hedge fund Elliott Management has taken a stake in oil major BP, CEO Murray Auchincloss said the British-based energy company would be turning back to its oil and gas assets, abandoning his predecessor’s “Beyond Petroleum” move to make the firm a diversified energy company and pursue low-carbon energy production, with investments in solar, wind and EV-charging. Auchincloss wants to pursue new leases the company has in Iraq and the Gulf of Mexico America whatever it’s called now. BP’s share price is down 2.5% in the past five years, while Exxon-Mobil’s shares are up 77%. “BP’s weak share price is the result of a far-too-radical transition strategy,” Irene Himona, an analyst at Bernstein Research, wrote in a recent note.
- Tomato tomahto: They were going to create the world’s third-largest automaker, slipping in just behind Toyota and Volkswagen, but Honda, Nissan and Mistubishi have called the whole thing off. What was the problem? Well, the parties to the proposed $50 billion merger just couldn’t agree on either a pre-nup or a dowry. Cash-strapped Nissan didn’t want to sit in the back seat while Honda drove, and it lacked the cash to buy itself out of its current alliance with Renault and Mitsubishi. (Plus, Renault apparently saw a golden opportunity to bolster its own reserves and reportedly demanded an outrageous price for its 37.5% stake. Mitsubishi’s presence just complicated everything.) Nissan and Honda will continue seeing each other, however, and their next date will be a joint effort to build hybrid and emission-free vehicles. And even though it got cold feet, Nissan still has one secret admirer: Foxconn. The Taiwanese-owned manufacturer of everyone’s favorites electronics said recently it may entertain a bid for Nissan.
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Elon’s World
The Kendrick Lamarr–Drake feud is nothing compared to Elon Musk’s war with Sam Altman. Still angry that Altman wants to turn the nonprofit OpenAI into a for-profit company (after he gave several million dollars to bankroll the AI venture), Musk first sued in federal court, claiming the move is illegal. That case was thrown out. While Musk is pursuing an appeal, he came out Monday with what he said was a $97.4 billion bid for the nonprofit that controls OpenAI. “If Sam Altman and the present OpenAI Inc. board of directors are intent on becoming a fully for-profit corporation, it is vital that the charity be fairly compensated for what its leadership is taking away from it: control over the most transformative technology of our time,” said Musk’s attorney, Marc Toberoff. Unmentioned: A for-profit OpenAI is also a potential competitor to Musk’s for-profit xAI, which has been lagging its peers and draining cash from Tesla.
Altman took to X to spit back:
Musk paid more than $42 billion for Twitter in 2022, then saw Tesla stock slip by two-thirds. The tit-for-tat knocked another 6.3% off the share price of Musk’s main company, Tesla, as analysts warned an OpenAI battle would distract Musk from running Tesla, which is already down about 25% this year, pulling Musk’s personal fortune down by $48 billion to well under the $400 billion mark.
On Thursday, word came that Musk had withdrawn his offer. No word yet on whether Musk and Altman will be taking their beef to the halftime show at next year’s SuperBowl.
Minting DOGE coin: Former officials at the now-defunct Consumer Financial Protection Bureau say the reason Musk targeted their office is because he wants to launch his own payments business on X, and doesn’t want government scrutiny. Musk started his career with a digital payment platform, and eventually joined PayPal in its rise to global dominance. Now he wants to make X a virtual wallet. But the CFPB has put other tech firms under the microscope when they launched digital money platforms. “Elon Musk is working his way into the financial products marketplace right now,” Richard Cordray, the bureau’s inaugural director, told The New York Times. “It’s very convenient for him to be trying to neutralize the regulator that he would have to answer to.”
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The Short Stack
- Who wants AI, anyway? Not America’s corporate chieftans, The Wall Street Journal reports, citing attendees at its annual CIO summit. Some 61% of CIO’s said they’re experimenting with AI agents, while 21% said they’re not using them at all. Their top concern about AI: It’s unreliable. Meanwhile, the big AI vendors, like OpenAI, Microsoft and Sierra say if the buyers wait for AI to get it right, it will be too late. Hmmm.
- SoftBank’s soft quarter: Fresh off a joint announcement with Sam Altman and Donald Trump that he’d partner with U.S. companies to invest up to $500 billion in new AI infrastructure in the U.S., SoftBank CEO Masayoshi Son reported his company had a net loss of $2.42 billion in Q4, raising questions about its ability make those promised investments. Anyone competing with xAI gets a broadside from Elon Musk, who openly questioned the seriousness of the big AI bet, called Stargate, after he was not present at the announcement. SoftBank CFO Yoshimitsu Goto said the company has long experience in project finance and doesn’t need to rely solely on its own balance sheet for investment funds. “We hope Elon-san will find that out,” he said.
- The California fires bite back: The cost of those fires is about to hit. California’s state-sponsored insurer of last resort, the FAIR Plan, says it will collect $1 billion from private insurers in the state, triggering an automatic increase in private home insurance across California. Already, major insurers were pulling back from the state. The money is needed for FAIR to pay out its claims, said the state’s insurance commissioner Ricardo Lara. Half the cost of the assessment can be passed on to consumers. Insurers have to absorb the other half. That’s pushing up rates. State Farm last week asked Lara to let it raise rates by 22% to keep operating in California. Advocates are also hoping the debacle will encourage insurers and the states to require less risky home-building practices, particularly the rapid growth of housing in the so called Urban-Wildland Interface, and the replacement of aging high-tension lines that sparked the 2017–2018 wildfires.
- Murdoch’s latest media move: Rupert Murdoch’s Fox Corporation said it’s acquired Red Seat Ventures, the digital media company that has become a go-to partner for conservative old-media stars, including Megyn Kelly, Tucker Carlson and Piers Morgan, as they create their own online programming. Red Seat founders Chris and Kevin Balfe will operate autonomously inside Fox’s Tubi Media Group. The purchase price was not disclosed. The move represents a homecoming for Carlson, who was pushed out of Fox TV as his program aired increasingly bizarre conspiracy theories and Russian state propaganda. Also coming aboard as part of Red Seat: Dr. Phil, Nancy Grace and another disgraced Fox personality, Bill O’Reilly.
Trumplandia
- Bribe, baby, bribe! U.S. companies have long complained they’ve been sidelined in countries where payoffs to government officials are the way to get business done. That’s because under the 1977 Foreign Corrupt Practices Act, it is illegal for U.S. companies to pay bribes abroad. The law was put in place following revelations by a Senate committee of massive bribes paid by U.S. firms, including Northrop, Lockheed, United Brands, Gulf Oil, and Mobil in Saudi Arabia, Japan, Honduras, Korea, Italy, and the Netherlands. United Brands CEO Eli Black jumped to his death from Manhattan’s PanAm building in 1973 just before investigators discovered a bribe he’d paid to Honduras’s president to cut taxes on banana exports. Black’s son Leon runs Apollo Capital Management. In one notable case brought under the FCPA, a Goldman Sachs subsidiary pleaded guilty to a foreign bribery charge in the collapse of Malaysia’s 1MDB sovereign wealth fund, with the bank paying $2.9 billion in fines and penalties and a former Goldman banker sentenced to 10 years in prison. Now Trump wants to sideline the law. In one the scores of executive orders he’s signed since returning to the White House, Trump has ordered the Justice Department to pause criminal investigations under the law for 180 days. It’s not clear how that affects civil prosecutions, which are handled by the Securities and Exchange Commission, and can result in fines of many millions of dollars. The White House said in a fact sheet Monday that U.S. companies were harmed by “overenforcement” of the act, because it “prohibited [them] from engaging in practices common among international competitors, creating an uneven playing field.”
- The tariff mess: Trump’s proposed tariffs are starting to cause a world of hurt, even before they are enacted. Planned 25% tariffs on steel and aluminum imports, set to take effect on March 12, are likely to hit automakers hard, and it will take time for U.S. steel mills to ramp up, even as their plants have excess capacity of more than 30%, and imports count for only 26% of U.S. steel demand. But getting the right mix of steel at the right price is why imports are used in the first place. A proposed 10% tax on Canadian oil imports will slam refineries in the Midwest that were built to take Canada’s crude oil, which is cheaper and heavier than most U.S. crude, and are expensive to adapt, especially if the tariffs are only a passing fancy. “You can’t turn the Titanic on a dime, and the industry is kind of the same way,” Rick Weyen, a retired refining executive, told the New York Times.
- Ford is angry: U.S. executives have been largely silent so far on Trump’s economic plans, but not Ford Motor CEO Jim Farley. He says Ford may have to lay off workers if Trump goes ahead with tariffs on Mexico and Canada, and cuts tax breaks for EVs. If Republicans repeal Biden-era legislation that provided billions in EV factory loans and subsidies, “many of those jobs will be at risk,” Farley told an investment conference. “A 25 percent tariff across the Mexico and Canadian border will blow a hole in the U.S. industry that we have never seen,” he added. “It gives free rein to South Korean and Japanese and European companies that are bringing one and a half to two million vehicles into the U.S. that wouldn’t be subject to those Mexican and Canadian tariffs.” Trump’s plans have not been helpful, Farley said. “So far what we’re seeing is a lot of costs and a lot of chaos.”
Peter S. Green is a veteran reporter and editor who has spent more than two decades covering business and finance from Eastern Europe to New York City, and has worked for Bloomberg News, The New York Post, The New York Times and The Messenger. He lives in New York City and is always looking for the next big story.
