DOJ Drops Powell Probe, Clears Path for Warsh
U.S. Attorney Jeanine Pirro ends criminal investigation into Fed Chair Jerome Powell. Move removes key obstacle to Kevin Warsh's confirmation.
The Department of Justice dropped its criminal investigation into Federal Reserve Chair Jerome Powell on Friday, removing a major obstacle to the Trump administration's Fed leadership transition.
U.S. Attorney Jeanine Pirro announced the decision on social media, stating that the probe into Powell's testimony regarding Fed headquarters renovation costs would not proceed. The investigation began earlier this year amid tensions between the White House and the central bank.
Markets reacted positively. The move clears a political logjam that had stalled Kevin Warsh's confirmation as Powell's successor.
What This Means for Markets
The probe's end has immediate practical implications. Senator Thom Tillis (R-NC) had effectively blocked Warsh's confirmation vote, refusing to advance the nomination while Powell faced criminal scrutiny. That hold is now lifted.
Warsh's confirmation hearing can proceed as early as next week. If confirmed, he would become Fed Chair in February 2027 when Powell's term expires. Warsh has signaled a preference for slightly easier monetary policy than Powell—not dramatically different, but at the margin more dovish.
Bond markets barely moved on the news, suggesting this outcome was largely priced in. The 10-year Treasury yield held steady at 4.12%. Fed funds futures still show near-zero probability of a rate cut at next week's FOMC meeting.
The real impact is removing uncertainty. Markets hate contested Fed leadership. With the probe resolved and Warsh's path cleared, investors can plan around a known transition rather than potential chaos.
What the Investigation Was About
The probe centered on cost overruns in the renovation of the Marriner S. Eccles Building, the Fed's Washington headquarters. The project's budget ballooned from initial estimates, triggering Congressional oversight.
Powell testified before the Senate Banking Committee about the construction costs. Pirro's investigation reportedly focused on whether those statements contained material misrepresentations.
Critics called the investigation politically motivated—an attempt to pressure Powell or tarnish his legacy ahead of Warsh's appointment. The Fed Chair has clashed with President Trump on various occasions, including rate decisions that the administration viewed as too restrictive.
By closing the probe without charges, Pirro threaded a needle: satisfying Tillis's demand for resolution while avoiding a prolonged legal battle that would further politicize the Fed.
The Warsh Factor
Kevin Warsh served as a Fed governor from 2006 to 2011, including during the 2008 financial crisis. He was reportedly Trump's second choice for Fed Chair in 2017, losing out to Powell.
Now he gets the job, assuming Senate confirmation proceeds smoothly.
Warsh's policy views differ from Powell's in subtle but meaningful ways:
| Issue | Powell Approach | Warsh Expected Approach |
|---|---|---|
| Inflation Target | Strict 2% goal | More flexible interpretation |
| Rate Cuts | Data-dependent caution | Slightly more willing to ease |
| Bank Regulation | Maintain current framework | Reduce regulatory burden |
| Fed Communication | Gradual transparency | More direct guidance |
Don't expect radical change. Both men are mainstream economists who believe in independent central banking. But Warsh may prove more willing to cut rates in response to economic weakness, a shift that would benefit growth stocks and rate-sensitive sectors.
Inspector General Takes Over
Pirro noted that the Fed's inspector general will now review the headquarters renovation costs. This internal investigation carries less political charge than a DOJ criminal probe but could still produce embarrassing findings.
The IG review focuses on administrative questions: Were contractors properly vetted? Did project managers follow procurement rules? Were budget updates communicated accurately to oversight bodies?
Any findings would arrive after Powell's term ends—potentially limiting their relevance but adding to historical scrutiny of his tenure.
What Comes Next
The Fed meets next week on April 28-29. Powell will chair his penultimate meeting as Fed Chair, with rates expected to hold steady at 3.5%-3.75%. Markets price essentially no chance of movement.
The focus shifts to inflation data and economic growth signals that might influence Warsh's early tenure. Recent readings show inflation moderating but still above target—a setup that gives the incoming chair flexibility without urgent pressure to act.
For traders, the DOJ news is background noise for now. The real action comes when Warsh starts signaling his policy priorities, likely during confirmation hearings. Until then, the Fed remains on autopilot at current rates. See our Economy coverage for updates on Fed policy.