By Nicole Goodkind
A federal judge has blocked the Justice Department's criminal investigation into Federal Reserve Chair Jerome Powell for the second time, setting up a lengthy appeals process that has thrown the future leadership of the central bank into question.
The ruling, issued last week, rejected prosecutors' claims that Powell misled Congress about cost overruns tied to the renovation of the Fed's Washington headquarters. Chief U.S. District Judge James Boasberg said the government hadn't presented credible evidence that a crime had been committed. The Justice Department has said it would continue to fight.
That means the case now shifts to an appeals court, a process that could take months or even years and leave the Fed in limbo.
Powell has made clear he doesn't intend to step aside while the case is unresolved. His term as chair expires May 15, but he also holds a seat on the Board of Governors that runs through January 2028, and there is no requirement that he give it up.
That leaves the Fed and the White House waiting on the courts.
President Donald Trump has nominated Kevin Warsh, a former Fed governor, to succeed Powell. But his path forward is now tied to the same timeline. Sen. Thom Tillis, a Republican on the Senate Banking Committee, has said he would block a confirmation vote while the Justice Department's investigation into Powell remains open, effectively linking Warsh's confirmation to the pace of the legal fight.
A confirmation hearing could still take place in the coming weeks, though Senate officials have offered conflicting timelines and the chamber has confirmed nothing officially. Even if one is scheduled, it wouldn't necessarily resolve the standoff because without Tillis, there is no clear path to a floor vote.
If the appeal drags past May, Powell has said he would remain in place as chair in an acting capacity. Even if Warsh is eventually confirmed, Powell could stay on the board and retain a vote on interest rates. That would leave a sitting Fed chair and his predecessor voting side by side, a scenario with little modern precedent. Any visible disagreement between them would be difficult for markets to interpret.
The uncertainty comes at a complicated moment for the Fed. Inflation is running near 3%, above the central bank's 2% target. The labor market is showing cracks. Oil prices have risen amid the conflict in the Middle East, complicating the inflation outlook and tariffs are feeding through the economy in ways that remain difficult to predict.
At its last two meetings the Fed held interest rates steady. Officials still project one rate cut this year, but Powell said recently that support for even that move is weakening.
Warsh has outlined a different approach, calling for a faster reduction of the Fed's roughly $6.7 trillion balance sheet alongside lower interest rates. Investors have begun to weigh what that shift could mean for borrowing costs and financial stability, but the timing of any transition is now as much a legal question as an economic one.
The Supreme Court is separately expected to rule in the coming months on whether a president can remove Fed governors before their terms expire. The case stems from Trump's attempt to dismiss Fed governor Lisa Cook, who sued to remain in her role. A ruling for the administration could open a separate path to reshaping the Fed's leadership.
The next big monetary move may come not from the central bank, but from the courts.
Write to Nicole Goodkind at nicole.goodkind@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 07, 2026 16:03 ET (20:03 GMT)
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