Good morning. Andrew here. Will Kevin Warsh be able to lower interest rates? We go deep on that question this morning as he is likely to soon be confirmed. We also go inside the courtroom for Sam Altman’s testimony in the Musk v. OpenAI case. And we take a look at the gobs of lobbying money from Silicon Valley swirling around Washington — and the influence it is buying. (Was this newsletter forwarded to you? Sign up here.)
“Impossible situation”Kevin Warsh appears to be on a glide path to becoming the next Fed chair, with a Senate vote on his nomination coming as soon as today. But Warsh’s probable future job has become more complicated. Yesterday’s Consumer Price Index data showed inflation accelerating to a three-year high, leaving him and the central bank in a bind on interest rates. What Warsh could face: A growing number of economists and Fed officials have warned recently that interest rates shouldn’t come down to counteract inflation propelled by the war with Iran. That risks drawing the ire of President Trump, whose repeated challenges of Fed independence — including his efforts to fire the governor Lisa Cook and his threats toward the current Fed chair, Jay Powell — are driven by his desire for lower borrowing costs. Warsh faces “complicated circumstances, to put it delicately,” David Wilcox, a fellow at the Peterson Institute for International Economics and a former Fed economist, told The Financial Times. Wilcox added: “He really is caught in an impossible situation between a president who is insistent on rate cuts and an inflation scenario that is problematic.” The economic data doesn’t appear to be fazing Trump. Speaking to reporters yesterday before his China trip, he professed little concern about the war-linked affordability crunch. “I don’t think about Americans’ financial situation,” he said, adding, “I think about one thing: We cannot let Iran have a nuclear weapon. That’s all.” But Americans feel differently. Consumer inflation expectations have risen since the start of the war in late February, according to the New York Fed. Bondholders are getting antsy, too. The yield on a 10-year Treasury note hit 4.46 percent this morning. That’s solidly in “yippy” territory, the point last April when bond-market turmoil drove Trump to back off from his most bruising tariffs. Other numbers to watch: The Cleveland Fed’s “trimmed mean” C.P.I. measure, which Warsh has talked up because it strips out especially volatile categories of goods and services, came in yesterday at its highest monthly rise since January 2024, Deutsche Bank analysts noted this morning. Traders are betting that the Fed will be on hold. The futures market this morning sees no cuts before September 2027, ahead of today’s Producer Price Index release at 8:30 a.m. Eastern.
The oil rally stalls. Brent crude, the international benchmark for oil, dipped to around $107 a barrel today, even though the Strait of Hormuz has remained virtually closed to ship traffic. The Times reported that much of Iran’s missile firepower remains intact, suggesting that Tehran could still threaten the vital waterway. Elsewhere, the cost of the war has risen to roughly $29 billion, a Pentagon official testified before Congress yesterday. Nvidia’s chief is joining President Trump’s trip to China after all. Jensen Huang, the chipmaker’s C.E.O., boarded Air Force One during a stopover in Alaska, as Trump headed to Beijing with an entourage of business leaders. Huang’s presence lifted shares in some Chinese A.I. companies and Nasdaq Composite futures today, as investors believe artificial intelligence will be a key discussion point at the summit meeting with Xi Jinping, China’s leader. Zohran Mamdani drops his threat to raise property taxes for New York City homeowners. The mayor’s $125 billion budget announcement yesterday didn’t include the proposal, which faced widespread opposition. But Mamdani is still supporting a new tax on luxury second homes in the city. Speaking of which: Trump urged Mamdani to patch things up with the billionaire Ken Griffin, whom the mayor had invoked in pushing for the so-called pied-à-terre tax. Political opponents have raised more than $1 million to fight his agenda.
“Are you completely trustworthy?”At the heart of Elon Musk v. OpenAI, the trial that has riveted the artificial intelligence industry, is a major question: Can Sam Altman, the start-up’s co-founder and C.E.O., be trusted? It’s a key attack by Musk’s lawyers in the trial. But it’s also weighing on many OpenAI stakeholders, including investors. Yesterday was Altman’s first time testifying in court, and the OpenAI chief was grilled by Musk’s lead lawyer, Steven Molo. “Are you completely trustworthy?” Molo asked, raising a number of issues, including:
But Altman turned the spotlight back on Musk, accusing his fellow OpenAI co-founder of sometimes making “hair-raising” demands. Among them: When Musk was asked what would happen to his control of a potential for-profit arm of OpenAI — then only a nonprofit — the billionaire said it would pass on to his children. A lot is riding on what jurors think of Altman’s trustworthiness. Musk is seeking $150 billion in total damages and wants to unwind OpenAI’s conversion into a for-profit enterprise now valued at $852 billion. The A.I. lab has also minted billions for its backers, including the Japanese tech giant SoftBank. The stability of that wealth may depend on the trial’s outcome. In other A.I. news: Isomorphic Labs, the drug discovery start-up born out of Google, has raised $2.1 billion from investors including Thrive Capital and the Emirati fund MGX. The move raises questions about Isomorphic’s growing independence. Hassabis, the Google A.I. leader who also runs Isomorphic, told DealBook’s Michael de la Merced that the start-up could eventually buy more computing power separate from Google. Could it lead to a spinoff down the line? “We’ll see,” Hassabis said. Big Tech goes to WashingtonSilicon Valley’s deep-pocketed artificial intelligence companies and venture capitalists are throwing money at politics like never before. Today, OpenAI is opening its first lobbying office in Washington, called the Workshop. The A.I. start-up spent $1 million on federal lobbying in the first quarter. Its rival Anthropic, which is in a battle with the Pentagon over its technology, opened a Washington office last month. OpenAI and Anthropic are contributing to a surge of spending by technology giants, Cecilia Kang reports for The Times: A quarter of the 13,000 federal lobbyists in Washington are involved in A.I. issues, up from 11 percent in 2023, according to an analysis of congressional disclosures by Public Citizen, a nonprofit watchdog group. Meta, Nvidia and Alphabet, Google’s parent company, spent a combined $47.8 million on federal lobbying last year, up 22 percent from 2024, according to Senate disclosures. Meta and Alphabet were top corporate spenders.
And with the midterm elections just months away, the biggest political donor so far is the venture capital firm Andreessen Horowitz, Theodore Schleifer reports for The Times: The Silicon Valley firm, along with its lead partners who have their names on the door, Marc Andreessen and Ben Horowitz, have funneled more than $115 million so far in disclosed federal contributions to midterm election efforts, according to a New York Times analysis. That makes it the biggest known spender on this campaign cycle. Andreessen Horowitz is not new to politics. Its founders are billionaires and experienced donors. But the amount of zeros on its checks has increased beyond even the $63 million or so that it and its eponymous founders spent in the 2024 cycle, as part of an astonishing effort by an investment shop to bend politics to its will. The firm and its co-founders have donated heavily to President Trump’s super PAC and to a crypto super PAC network called Fairshake. Recently, Andreessen Horowitz helped found Leading the Future, a bipartisan super PAC network dedicated to electing pro-A.I. legislators, and donated $50 million. Reader feedback: carried interestOn Monday, Andrew asked where readers stood in the debate over carried interest, the billions of dollars in profits paid to many kinds of investment executives that is taxed at capital gains rates. A new report from the Budget Lab at Yale found that closing the carried interest loophole could rake in an estimated $87.7 billion in tax revenue over a decade. An industry advocacy group called that estimate “wrong,” arguing that changing the tax policy could lead to a drop in federal tax revenue. We received a lot of messages, the majority in favor of ending the exemption. Here’s what you had to say. The answers have been condensed and edited for clarity:
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