DOJ Drops Jerome Powell Investigation, Clearing Path for Kevin Warsh as Federal Reserve Chair
The U.S. Department of Justice has dropped its criminal investigation into Federal Reserve Chair Jerome Powell over alleged cost overruns in renovating the central bank's headquarters, a move that appears to clear the path for President Donald Trump's nominee, Kevin Warsh, to take over as Fed chair. The probe, which centered on a project ballooning to an estimated $2.5 billion, had stalled Warsh's confirmation after a key Senate Republican conditioned support on its resolution. According to Bloomberg reports, this decision by U.S. District Attorney Jeanine Pirro effectively ends the immediate legal pressure on Powell, though some describe it as a partial reversal that keeps underlying tensions alive.
The investigation stemmed from Trump's accusations of improper spending on the Fed's Washington headquarters renovations. As reported by the BBC and multiple Bloomberg outlets, a federal judge noted the probe had produced essentially zero evidence of wrongdoing, aligning with prior reviews by the Federal Reserve's inspector general, which found no misconduct even in a second examination requested by Powell himself. CBS News highlighted that Pirro is closing the criminal case for now, deferring further scrutiny to the inspector general, while Axios described the announcement as a sharp pivot by the Trump administration.
Financial markets reacted swiftly to the news. Treasuries gained for the first time in a week, as investors anticipated Warsh—a former Fed governor known for advocating lower interest rates—could steer monetary policy toward cuts amid ongoing economic pressures, including fallout from the Iran conflict. Bloomberg's market coverage noted stocks closing higher, with discussions on shows like "Real Yield" and "The Close" featuring experts such as former Fed Governor Betsy Duke, who previewed how a Warsh-led Fed might differ from Powell's more hawkish stance on rates.
Trump himself signaled flexibility, telling Semafor he would consider alternative investigations into Powell, potentially offering an off-ramp to the saga. The Independent reported that the DOJ's action directly addressed the Senate holdup, where Trump's pick was blocked unless prosecutors backed off. This development unfolds against a backdrop of broader White House maneuvers, including envoys like Witkoff and Kushner heading to Iran talks, as mentioned in Bloomberg podcasts, underscoring the administration's multifaceted agenda.
For everyday Americans and the global economy, the stakes are high: the Fed chair influences borrowing costs, inflation, and job growth. A Warsh confirmation could signal looser policy to combat slowdowns, benefiting consumers with cheaper loans but risking higher inflation. Wall Street analysts on CNBC debated the implications, weighing potential boosts to stocks against persistent uncertainties like credit market strains from geopolitical tensions.
What happens next remains fluid. The Senate must still confirm Warsh, with Wednesday's rate decision looming as a key test. While the criminal probe is dropped, civil or internal reviews could resurface, and Powell shows no signs of voluntary departure. As former Fed counsel Scott Alvarez noted in Bloomberg discussions, this partial closure smooths one path but leaves Fed drama simmering, affecting everyone from homeowners to investors as the central bank navigates Trump's vision for aggressive economic stimulus.