Justice Department to drop Powell investigation

• Key insight: The Department of Justice will close its investigation into Federal Reserve Chairman Jerome Powell related to his comments regarding building renovations to the Fed’s Washington headquarters, a probe even many Republicans found baseless. 
• Forward look: The conclusion of the probe clears the way for Sen. Thom Tillis, R-N.C., to vote to confirm Kevin Warsh as Fed chairman. Tillis has said he looks forward to supporting Warsh’s nomination after the DOJ investigation is dropped. 
• What’s at stake: Warsh has promoted shrinking the Fed’s balance sheet and reducing the central bank’s role in markets. 

WASHINGTON — U.S. Attorney for the District of Columbia Jeanine Pirro said the Department of Justice will drop its investigation into Federal Reserve Chairman Jerome Powell, ending a monthslong standoff that had imperiled the confirmation of the White House’s pick to replace Powell. 

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Pirro said that the inspector general for the Federal Reserve will take over looking into spending overruns on the Fed headquarters in Washington.

“I have directed my office to close our investigation as the IG undertakes this inquiry,” she said on X. “Note well, however, that I will not hesitate to restart a criminal investigation should the facts warrant doing so.” 

The Federal Reserve’s Office of Inspector General said in a statement Friday afternoon that the office has been conducting its own investigation into cost overruns related to the Fed headquarters renovation project, and that their assessment “includes our independent analysis of the project’s substantial cost increases and overruns.” The statement added that the office is “actively working to complete our review, and look forward to making the results available to the public and Congress upon completion.”

The dropped DOJ probe comes after pressure from Republican lawmakers who pressed the Trump administration to stop their investigation so they can confirm Kevin Warsh to chair the central bank, two people familiar with discussions said. 

The decision clears the way for Warsh’s confirmation before Powell’s term ends in mid-May. The Senate Banking Committee now has a slim window to notice a vote for Warsh in the panel for late next week, which would make it possible — although tight — to confirm him before May 15. 

Powell could decide to stay on as a board member and fulfill his full term, although Fed chairs typically resign once their chairmanship concludes. Powell hasn’t committed to leaving the Fed board, saying at the March Federal Open Market Committee meeting that he has “no intention of leaving the board until the investigation is well and truly over, with transparency and finality.” 

Warsh’s nomination has been stalled by the Powell investigation, notably by Republican Thom Tillis, the senator from North Carolina who will be retiring at the end of this Congress. 

“We had some U.S. attorney or assistant U.S. attorney with a dream [thought] it would be cute to bring Chair Powell under investigation,” Tillis said at Warsh’s confirmation hearing earlier this week. “It sounds like someone at the DOJ didn’t check with the boss.”

While Tillis was the notable oppositional vote, sources in the Senate said many other Republican lawmakers on the committee were privately uncomfortable with the investigation. Lawmakers also were wary of any nascent attempt by the Trump administration to install an interim chairman via the Vacancies Act instead of following the Fed’s own governing statute, which would allow Powell to stay on as interim chairman, the people said. 

Warsh as Fed chairman would likely usher in a more opaque institution, and would try to pull back the central bank’s role in markets. He suggested during his confirmation hearing that there would be fewer press conferences and speeches, and that he would shrink the Fed’s massive balance sheet. 

Warsh also insisted that he — at least on monetary policy — would act independently from Trump’s wishes, although he said that politicians are welcome to share their views on interest rate policy. He said that it’s appropriate for the Fed to follow the White House’s lead on bank policy, however. 

“The President never, generally or specifically, instructed me [or] suggested I should commit to any interest rate path whatsoever,” he said. “I will be an independent actor if confirmed as chair of the Federal Reserve.”

Regardless, Warsh would have his work cut out for him once he is confirmed. With inflation worsening and war in Iran driving up gas prices, the current Fed has suggested that they need to keep rates steady to combat rising costs. Yet, he will face intense pressure from the White House to lower rates.