DOJ Ends Criminal Investigation of Jerome Powell, Clearing Path for Kevin Warsh Confirmation

Federal prosecutor Jeanine Pirro plans to end her federal probe of current Federal Reserve Chair Jerome Powell, paving the way for the Senate to confirm his successor, Kevin Warsh.

Pirro, the U.S. Attorney for Washington, DC, said in a post on X on Friday that she would end the investigation over cost overruns involving the Fed's headquarters and Powell's Senate testimony on the matter.

The shift is expected to break a deadlock in the Senate, which is considering Warsh's nomination to succeed Powell, whose term ends May 15. All Democrats on the Senate Banking Committee and some crucial Republicans, including North Carolina Sen. Thom Tillis, said they oppose confirming a new pick while the investigation into Powell was underway.

Pirro said she had directed her office to conclude its criminal probe, and that the inspector general for the Federal Reserve had been asked to investigate cost overruns in the renovation project.

"The IG has the authority to hold the Federal Reserve accountable to American taxpayers," Pirro said. "I expect a comprehensive report in short order and am confident the outcome will assist in resolving, once and for all, the questions that led this office to issue subpoenas."

Powell denied the allegations and said they are a pressure tactic to force the Fed to lower interest rates. President Donald Trump has criticized Powell for failing to dramatically cut rates, and he nominated Warsh, who is more dovish on rate cuts.

Headquarters controversy

Pirro initially stood by the investigation earlier this week, even as Warsh's nomination hit a deadlock in the Senate. The Fed's headquarters renovation cost jumped from $1.9 billion in 2023 to $2.5 billion last year. While Fed officials cited building and site issues and inflation, Pirro criticized the cost as wasteful. The investigation reputedly came at the behest of Trump, who nominated Pirro to her role.

The inspector general will look into the matter, Pirro said, causing her office to "close" the investigation. That could spell the end of the DOJ's case in the D.C. district court. It most recently handed Pirro a loss in quashing subpoenas she'd issued to the Fed.

"Note well, however, that I will not hesitate to restart a criminal investigation should the facts warrant doing so," Pirro said in her post on X.

Powell has said he would remain at the Fed while the investigation was underway. That too has rankled Trump, who wants to see him depart once his tenure as chair is completed.

By statute, Powell can remain on the Federal Reserve board of governors as a regular member until 2028. He said last month that he had not yet decided whether to step down from the board after the DOJ concludes.

Powell is expected to face questions about his future at the Fed when the Federal Open Market Committee meets next week to vote on rate policy. Markets expect the FOMC to hold rates steady in their current range.

Future of the Fed

The dispute over who will head the Fed has major implications for the housing market, particularly through interest rates. Powell drew the president’s ire for being more cautious about rate cuts than the president prefers.

In his confirmation hearing this week, Warsh asserted he would maintain the Fed’s independence from the White House. But senators, especially Democrats, criticized him as being too close to Trump. 

Warsh has called for a "regime change" at the Fed, especially in regards to how it fights inflation. He may focus on lightening its balance sheet, with $6.7 trillion in assets, as a way to lower the policy rate without changing the posture of monetary policy.

How this would affect interest rates, including the 10-year yield and mortgage rates, is the major question, Realtor.com® Chief Economist Danielle Hale says.

"Quantitative easing was undertaken to reduce these long-term rates, so unwinding it would likely have the opposite effect, but if taken in concert with short-term rate reductions, the net impact is less clear," Hale notes.

Arkansas Rep. French Hill, a Republican who chairs the House Committee on Financial Services, welcomed the end of the investigation. He said in a statement it was a "distraction."

"I hope the Senate can get President Trump’s highly qualified nominee, Kevin Warsh, confirmed and in place as soon as possible to further advance President Trump’s economic agenda," Hill said.