Justice Department drops criminal investigation of Fed chair Powell, likely clearing way for Warsh

WASHINGTON— In a surprising twist, Jeanine Pirro, the U.S. attorney for the District of Columbia, announced Friday that she would drop an investigation into Federal Reserve Chair Jerome Powell that critics have labeled as politically motivated since it became public in January.

That investigation, which focused on whether Powell lied to Congress about a $2.5 billion renovation of the central bank’s headquarters, had emerged as a stumbling block in President Trump’s effort to replace Powell with his own pick.

Sen. Thom Tillis (R.N.C.) has said he will block Kevin Warsh’s nomination as the next chairman of the Fed as long as the Powell investigation continues.

While the Justice Department’s investigation is now closed, the bank’s inspector general will instead take over the investigation into the costly renovations, and Pirro did not rule out continuing the criminal investigation.

“However, remember that I will not hesitate to reopen the criminal investigation if the facts warrant.” Pirro wrote to X.

White House spokeswoman Karoline Leavitt later told reporters that Pirro’s statement did not signal the end of the investigation.

“This is among the president’s priorities,” he said.

Tillis did not respond to requests for comment.

Powell was first appointed to the post by Trump in 2017 but fell out of favor with the president by resisting a pressure campaign to lower interest rates.

The bank has historically had more independence than other federal agencies to insulate its decision-making from political influences.

The limits of the bank’s independence are currently being tested by Trump’s attempt last August to fire one of Powell’s colleagues, Federal Reserve Governor Lisa Cook, over allegations of mortgage fraud.

Cook protested his firing, and the Supreme Court heard his and the management’s arguments in January. The court’s decision, which has not yet been announced, could determine whether officials at the bank are more protected from being fired by the president than officials at other federal agencies.

Although Powell did not comment on the news that Pirro had abandoned his investigation, he said in March that he had “no intention of leaving the Board until the investigation is completed in a fully transparent and conclusive manner.”

The case suffered a significant blow in March when U.S. District Judge James Boasberg revoked subpoenas targeting Powell.

Several former federal prosecutors said Powell was one of the president’s political enemies, including former CIA Director John Brennan and former FBI Director James Comey, who became targets of criminal investigations over statements they made to Congress.

“The basis for the investigation of Jerome Powell was always questionable in light of President Trump’s public complaints about his refusal to lower interest rates upon request,” said Barbara McQuade, former U.S. attorney for the Eastern District of Michigan.

Greg Brower, former U.S. attorney for Nevada, said the political calculations that underpinned the decision to launch and ultimately halt the Powell investigation marked a significant break from previous precedents.

“If you talked to 100 former U.S. attorneys, I don’t think you would find one who would say they felt political pressure to file or not to file a lawsuit,” he said.

Pirro’s decision could pave the way for Warsh’s candidacy to move forward.

Warsh walked a tightrope in his confirmation hearings before the Senate Banking Committee, trying to convince senators that he would not be a “sock puppet” for the president and Wall Street as Donald Trump continued to demand the Fed lower interest rates.

Her nomination was met with caution by Senate Democrats on the committee, who questioned her close ties to Trump and Wall Street investors.

“The President never asked me to adhere to a particular interest rate decision,” Warsh said at a hearing. “If that were the case, I would never agree to do it either.”

Those comments came just hours after Trump, in an interview on CNBC, was asked if he would be disappointed if Warsh didn’t cut rates immediately and responded, “I would.”

Warsh, a former Fed governor during the financial crisis, later emerged as a critic of the central bank’s long-running low interest rate policy and harsh market interventions. He later did economic research at the Hoover Institution, served on the board of directors of UPS, and worked as a private equity advisor.

Warsh, whose net worth is estimated to be between $135 and $226 million, would be the richest Federal Reserve Chairman in history.

If confirmed, he would propose a “regime change” in Fed policy in favor of pro-growth, market-first approaches.

“Status quo practices and policies are especially harmful when the world is changing so rapidly,” Warsh told lawmakers at his Senate confirmation hearing this week.

Warsh has signaled interest in cutting back, saying the Fed’s $6.6 trillion balance sheet has become too “inflated.”

Since the 2008 financial crisis, the Fed has purchased trillions of dollars of bonds to support the economy and housing markets. But Warsh says the safety net is no longer needed.

He suggested that the Fed sell more of its assets and print less money; He argued that these moves would effectively shift the power to set interest rates to the private market. Critics worry such a move would destabilize the economy and cause mortgage rates to rise.

“The simple version of this is: Run the printing press a little less. Let the balance sheet go down,” he told Fox Business last year.

Morgan Stanley chief U.S. economist Michael Gapen said a rapid change in the Fed’s Warsh-era footprint was “unlikely.” While reducing reserves is a long-term goal, Gapen said asset cuts could make the financial system less resilient during periods of economic stress.

“There is no free lunch,” he said.

Since the financial crisis, the Federal Reserve has been concerned with forecasting the economic future of the US economy. The practice is known as “forward guidance,” a tool used by Federal Reserve economists to communicate future interest rate intentions.

Warsh wants to eliminate forward guidance but has declined to say how he would approach interest rate decisions if approved.

“I don’t believe I need to preview for you what a future decision might be,” he said during a meeting with Sen. Chris Van Hollen (D-Md.).

This article contains reporting from the Associated Press.