US prosecutors have dropped their criminal investigation into Federal Reserve chair Jay Powell, in a breakthrough that could pave the way for the Senate to confirm Kevin Warsh as the country’s top central banker.
Jeanine Pirro, the US attorney for the District of Columbia, said in an X post on Friday that she had told her office to “close our investigation” into cost overruns in a Fed building project, and had passed the probe to the central bank’s inspector general.
The move could clear hurdles facing Warsh as he seeks a confirmation through a majority in the Senate. Some Republican senators, led by North Carolina’s Thom Tillis, have refused to back Warsh’s nomination due to the criminal probe.
Tillis said this week that he would support Warsh “once the DOJ drops their bogus investigation into Chairman Powell that threatens the independence of the Fed”. The senator did not immediately respond to requests for comment.
The breakthrough comes just weeks before Powell’s term as Fed chair was due to end on May 15. US President Donald Trump has repeatedly berated Powell for not cutting interest rates.
Treasury yields dropped following the news, as investors bet that a swift confirmation of Warsh would ultimately lead to lower interest rates.
The two-year Treasury yield, which moves with monetary policy expectations, fell 0.05 percentage points to 3.79 per cent. Traders in the futures market modestly increased their bets on an interest rate cut this year, though the odds were only lifted to about 40 per cent.
Pirro’s probe represented one of the fiercest of the Trump administration’s repeated attacks on the US central bank’s ability to set monetary policy free from interference from the White House.
The US president also attempted to fire Fed governor Lisa Cook last summer over allegations of mortgage fraud. Cook has denied the allegations, for which she has yet to be charged, and is contesting the decision in a Supreme Court case.
The Department of Justice probe focused on whether Powell misled Congress over a $2.5bn renovation of the Fed’s headquarters in Washington. The Fed chair has denied the allegations and said the probe was an attempt by the White House to pressure central bank officials to slash borrowing costs.
White House spokesperson Kush Desai said the inspector general’s “more powerful authorities best position it to get to the bottom of the matter” of the Fed’s “fiscal mismanagement”.
Powell already requested in July that the Fed’s inspector general launch a fresh inquiry into the cost of the refurbishment, which is $700mn over budget.
Pirro said this week that she would appeal an earlier opinion that blocked her attempts to subpoena the Fed. However, Senate Republicans have been increasingly vocal in objecting to the DoJ probe, raising the prospect that their block on Warsh would mean Powell remaining Fed chair beyond May 15.
“A key question is whether this is just a feint by the administration to smooth the path for Warsh’s confirmation, on the assumption that he will prove pliant to Trump’s wishes,” said Eswar Prasad, a professor at Cornell University.
Warsh, a former Fed governor, needs 51 senators to back his nomination. Republicans hold a majority of 53 in the upper house of Congress.
Desai said: “The White House remains as confident as before that the Senate will swiftly confirm Kevin Warsh . . . to finally restore competence and confidence in Fed decision-making.”
