DOJ drops investigation into Jerome Powell, clearing path for Warsh

Jerome Powell, the Federal Reserve chair, is no longer under criminal investigation by the US Department of Justice, which has removed an obstacle for Kevin Warsh, Donald Trump’s nominee to replace him. Jeanine Pirro, the US attorney for the District of Columbia, announced on social media that her office would close the investigation into renovations at the Fed headquarters that exceeded budget. Pirro stated, "I have directed my office to close our investigation as the [inspector general’s office] undertakes this inquiry," but added, "I will not hesitate to restart a criminal investigation should the facts warrant doing so."

The investigation was made public in January when Powell disclosed that he had been subpoenaed. Powell characterized the inquiry as a pretext to pressure the Fed into lowering interest rates, saying, "This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions – or whether instead monetary policy will be directed by political pressure or intimidation."

Bipartisan criticism of the investigation emerged, including from Republican Senator Thom Tillis, who indicated he would block Warsh’s nomination until the investigation concluded. Tillis remarked, "Let’s get rid of the investigation so I can support your nomination."

Trump has had a contentious relationship with Powell, criticizing him for his stance on interest rates. Despite the DOJ's decision, Trump continues to express concerns about the Fed, stating that the investigation was necessary to determine if there was "incompetence, corruption or both."

With Powell’s term ending on May 15, Warsh has indicated alignment with Trump’s desire for lower interest rates, raising concerns about the Fed's independence. Economists generally agree that a nonpolitical central bank is crucial for economic stability. Additionally, the Supreme Court is expected to rule by June on the constitutionality of Trump’s firing of Fed governor Lisa Cook, which could further impact the Fed's dynamics.

What to watch: The Senate's upcoming vote on Kevin Warsh's nomination as Fed chair.