The Justice Department is dropping its criminal investigation into Federal Reserve Chair Jerome Powell, a move that removes a major obstacle to the Senate considering President Trump’s nominee to lead the Federal Reserve, Kevin Warsh.
The change reverses the stance of U.S. Attorney Jeanine Pirro, who had continued pursuing cost-overrun allegations tied to renovations at two Federal Reserve buildings even after a judge temporarily halted the inquiry. Pirro said she will now refer the matter to the Fed’s inspector general for review. The projects’ reported costs have risen from about $1.9 billion to $2.5 billion; the Fed says the increases reflect unexpected discoveries such as excess lead and asbestos and broader construction inflation.
Pirro wrote on X that she has asked the inspector general to scrutinize the overrun claims and directed her office to close the criminal probe while that inquiry proceeds. The Fed’s inspector general has already reviewed these projects twice in the past and found no evidence of wrongdoing.
The investigation unfolded amid heightened tensions over the Fed’s independence. President Trump repeatedly criticized Powell’s policy decisions for not lowering interest rates as aggressively as the White House favored and even publicly confronted Powell during a visit to the renovation site. In March, a federal judge said the DOJ’s criminal probe appeared to be part of an improper effort by the Trump administration to pressure the Fed into cutting rates and temporarily blocked the investigation; Pirro had indicated she planned to appeal that ruling.
The probe drew wide criticism. Powell called it a pretext for White House pressure to secure lower interest rates, and the judge described the inquiry as an unjustified act of intimidation.
Trump has nominated former Fed governor Kevin Warsh to replace Powell when his chairmanship ends next month. During Warsh’s Senate Banking Committee hearing, Senator Thom Tillis, R-N.C., warned he would block Warsh’s confirmation unless the Justice Department ended its investigation into the Fed, quipping that putting every federal official associated with a budget overrun behind bars would require “an area roughly the size of Texas for a penal colony.”
Pirro’s decision to close the criminal probe appears to remove that immediate hurdle and could clear the way for Warsh’s confirmation, though uncertainty about Powell’s future and the Fed’s direction remains.
Powell has not said whether he will resign his seat on the Fed’s board, which collectively sets interest rates; his board term runs through 2028. He has said he will weigh what is best for the institution and the public and may announce his choice at the Fed’s next meeting. If he leaves the board when his chairmanship ends, the president could fill that vacancy with a governor more inclined toward the deeper rate cuts the White House favors. If Powell stays, he would retain a vote on monetary policy.
All of this is occurring against the backdrop of global economic strain. The war with Iran has contributed to higher oil prices and upward pressure on inflation worldwide. Under typical policy responses to rising inflation, the Fed keeps interest rates elevated, which makes the aggressive rate cuts advocated by the White House less consistent with conventional central-bank practice in the current environment.