DOJ Drops Powell Probe, Clearing Path for Warsh Confirmation

The Department of Justice will close its investigation into Federal Reserve Chairman Jerome Powell, ending a monthslong inquiry. This announcement comes after a probe into spending overruns concerning the Fed's Washington headquarters. The Federal Reserve's own inspector general will now take over the inquiry.

This decision directly addresses a significant political obstacle for the White House's preferred candidate, Kevin Warsh. Senator Thom Tillis (R-N.C.) had publicly stated he would not support Warsh's nomination for Fed chair until the DOJ dropped its investigation into Powell. The probe, even among some Republicans, was viewed as baseless, creating pressure on the Trump administration.

U.S. Attorney for the District of Columbia Jeanine Pirro announced the Department of Justice's decision to close its investigation. Pirro confirmed the Federal Reserve's inspector general would assume responsibility for the inquiry into the headquarters' renovation costs. Senator Tillis previously criticized the probe, stating that an attorney had the "dream" to investigate Chairman Powell. This statement underscored the perception of the investigation's questionable origins.

With the investigation concluded, Senator Tillis expects to support Kevin Warsh's nomination, clearing the path for a confirmation vote. Warsh's potential chairmanship signals a notable shift for the central bank's direction. He has advocated for reducing the Federal Reserve's expansive balance sheet, which refers to its substantial holdings of assets such as government bonds and mortgage-backed securities acquired during past economic crises. This approach aims to lessen the central bank's direct involvement in financial markets.

Warsh has also indicated a preference for a more subdued public presence for the Federal Reserve. He suggested fewer press conferences and speeches during his confirmation hearing. While Warsh affirmed his independence on monetary policy, he noted the appropriateness of the Fed following the White House's lead on banking policy. Chairman Powell, meanwhile, could choose to remain a board member for his full term, though Fed chairs typically resign after their chairmanship ends.

The Senate will now proceed with Warsh's confirmation, anticipating a significant change in the Federal Reserve's operational approach and market influence. Observers will closely monitor how Warsh navigates the central bank's independence, its role in the economy, and its communication strategy.