The U.S. Justice Department is abandoning its criminal investigation of Federal Reserve Chair Jerome Powell, clearing a path for the Senate to consider confirming President Trump’s nominee to lead the Fed, Kevin Warsh.
The move reverses the position of Jeanine Pirro, the U.S. attorney for the District of Columbia, who had vowed to continue probing cost overruns tied to renovations at two Federal Reserve buildings even after a judge halted the investigation. Pirro said she will now ask the Fed’s inspector general to examine the overruns, which have grown from $1.9 billion to $2.5 billion. The Fed attributes the higher costs to unexpected findings such as excess lead and asbestos and to inflation that has raised construction expenses nationwide.
“This morning the Inspector General for the Federal Reserve has been asked to scrutinize the building costs overruns,” Pirro wrote on X. “Accordingly, I have directed my office to close our investigation as the IG undertakes this inquiry.”
The Fed’s inspector general previously reviewed the construction project twice and found no wrongdoing.
Pirro’s probe unfolded against a backdrop of intense friction over central bank independence. President Trump repeatedly criticized the Fed and Powell for not cutting interest rates as aggressively as he wanted and publicly sparred with Powell during a visit to the renovation site. In March, a federal judge said the DOJ’s criminal investigation was part of an improper campaign by the Trump administration to pressure the Fed into lowering rates and temporarily blocked the probe; Pirro had said she would appeal.
The investigation drew broad criticism. Powell called it a pretext for White House pressure to secure lower interest rates, and the judge characterized the inquiry as an unjustified act of intimidation.
Trump nominated former Fed governor Kevin Warsh to replace Powell, whose term as chair expires next month. Senator Thom Tillis, R-N.C., had threatened to block Warsh’s confirmation unless the Justice Department dropped its investigation into the Fed. “If we put everybody in prison in federal government that had had a budget go over, we’d have to reserve an area roughly the size of Texas for a penal colony,” Tillis said at Warsh’s Senate Banking Committee hearing.
Pirro’s decision appears to remove that immediate obstacle and could clear the way for Warsh’s confirmation. Still, Powell’s role and the Fed’s future direction remain uncertain. Powell has not said whether he will resign from the Fed’s board, which collectively sets interest rates; his board term runs through 2028. He has said he will decide what’s best for the institution and the public and may disclose his decision at the Fed’s next meeting.
If Powell steps down from the board when his chairmanship ends, the president would have an opportunity to appoint another governor who might favor the deeper rate cuts the White House seeks. If Powell remains on the board, he will retain a vote on monetary policy.
All of this occurs amid global economic strain. The war with Iran has pushed oil prices and inflation higher worldwide. Under normal circumstances, the Fed combats inflation by keeping interest rates elevated, making the aggressive cuts pushed by Trump less consistent with typical central bank policy in the current environment.