The U.S. Department of Justice has announced it will conclude its criminal investigation into Federal Reserve Chair Powell, removing a major obstacle that had previously hindered the confirmation of Kevin Warsh as his successor. This development has fueled expectations for an interest rate cut within the year, leading to a rise in the three major U.S. stock indices.
U.S. Attorney Jeannie Pirro stated on Friday that her office is terminating the investigation into matters related to Powell's testimony concerning cost overruns on a Federal Reserve building renovation. A federal judge had previously ruled that a subpoena issued to the Fed in January was improper and found there was "scant evidence of any criminal violation." Pirro indicated on social media platform X that her decision to drop the investigation came after requesting a review of the matter by the Fed's Inspector General. She wrote, "I expect to receive a comprehensive report shortly and believe its findings will help fully resolve the questions that prompted our office to issue the subpoena." She added, "However, please note that I will not hesitate to reopen the criminal investigation if the facts show it is necessary."
A White House spokesperson subsequently stated, "American taxpayers deserve answers regarding the Fed's fiscal mismanagement. The Inspector General's office has stronger authority and is best positioned to uncover the truth. The White House continues to believe the Senate will promptly confirm Kevin Warsh as the next Fed Chair to ultimately restore the Fed's decision-making capability and credibility."
Prior to Warsh's confirmation hearing on Tuesday, former President Trump dismissed suggestions that Congress should oversee the Fed's overspending and end the investigation, insisting, "We must find out where this money actually went." In fact, Powell had requested the Fed's Inspector General review the building project as early as last July, and that work is still ongoing. The Inspector General had released preliminary audit findings related to the renovation project in 2021.
For Warsh, the DOJ's decision removes the most significant political barrier to his confirmation. Republican Senator Thom Tillis had previously stated he would not advance consideration of any Fed nominee while the investigation remained open. With Republicans holding only a narrow 13-11 majority on the Senate Banking Committee, and all Democratic senators having refused to consider the nomination, Tillis's support was crucial. During this week's hearing, Tillis did not question Warsh but used his time to present a slide deck detailing the renovation costs page by page. He told Warsh, "You have an outstanding, impeccable record. Let's conclude this investigation so I can support your confirmation."
Following the hearing, pressure mounted within the Republican party for Trump and Pirro to drop the investigation. Several senior Republicans, including Senate Majority Leader John Thune, publicly supported Tillis's call to advance Warsh's nomination.
Powell's term as Chair ends on May 15. He has previously stated that if a successor is not in place by then, he will continue to lead the Fed as "Interim Chair." The Fed's next interest rate decision meeting is scheduled for June 16-17. Powell also faces another decision regarding whether to resign from his position as a Fed Governor. He can retain that board seat until January 2028. He had previously indicated he would remain on the board at least until the investigation was "truly over, with transparency and finality." Any decision to stay beyond that would "depend on what I believe is best for the institution and the public."
Warsh has been nominated to succeed Fed Governor Stephen Milan, whose term ended in January but who can remain until Warsh is confirmed. If Powell leaves the board, a new candidate could be appointed to fill the vacancy.
The conclusion of this investigation, at least for now, brings a temporary end to a conflict concerning Fed independence. In an unusual move during a video statement in January disclosing the investigation, Powell publicly accused the executive branch of using the probe as a pretext to pressure the central bank on interest rate policy. Separately, the Trump administration had also attempted to remove another Senate-confirmed Fed Governor, Cook. The Supreme Court has allowed Cook to remain in her position while she challenges her removal; a ruling on that matter is expected by the end of June.
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