The Justice Department dropped its criminal investigation into Federal Reserve Chair Jerome Powell on Friday. The probe, which was opened in January, had centered on cost overruns in a renovation of two historic Fed buildings in Washington. The project originally estimated at $1.9 billion grew to roughly $2.5 billion.
U.S. Attorney Jeanine Pirro announced the closure, referring the cost overruns to the Fed’s inspector general instead. The DOJ found no evidence of a crime.
What it did find, according to Powell and a bipartisan group of senators, was a useful tool for pressuring an independent central banker who refused to do what the president wanted.
How It Started
Trump has attacked Powell for years, repeatedly demanding lower interest rates and accusing him of deliberately undermining the economy. He called Powell “a disaster” and, as recently as January, posted that Powell was “that jerk” who “will be gone soon.”
The criminal probe was opened in January after Trump’s DOJ began scrutinizing the Fed’s building renovation costs. Powell did not back down. He confirmed the probe publicly, told reporters the Fed would continue setting interest rates “based on our best assessment of what will serve the public, rather than following the preferences of” the president, and said he would not resign.
In April, Trump escalated further. He told reporters he planned to fire Powell once his term expired next month, a move legal scholars said would be constitutionally questionable. Federal Reserve Act gives the president authority to remove governors only “for cause.” Powell, himself a lawyer, has repeatedly said the president cannot remove him on those grounds.
The Fed kept rates steady throughout the pressure campaign.
The Tillis Factor
While Trump was publicly threatening Powell, a quieter standoff was playing out in the Senate. Trump’s nominee to replace Powell, Kevin Warsh, had been waiting for a confirmation vote. Republican Senator Thom Tillis of North Carolina had placed an effective hold on Warsh’s confirmation, refusing to allow it to move forward until the DOJ dropped its investigation of Powell.
Once the probe was closed Friday, Tillis released his hold. Warsh’s path to confirmation is now clear.
Senator Elizabeth Warren, the top Democrat on the Senate Banking Committee, did not mince words. “This is just an attempt to clear the path for Senate Republicans to install President Trump’s sock puppet Kevin Warsh as Fed Chair,” she said.
What the Fed’s Independence Actually Means
The Federal Reserve sets interest rates independent of the White House for a reason. Political pressure to cut rates before an election, or to keep them low during one, can fuel inflation and destabilize financial markets. The Fed’s independence is not a technicality. It is a structural safeguard built into law after decades of experience with what happens when central banks take orders from politicians.
Trump’s pressure campaign against Powell was unprecedented in modern history. No president in the modern era had used the Justice Department to open a criminal investigation into a sitting Fed chair. Analysts at major financial institutions warned throughout the process that even the threat to Fed independence was rattling bond markets and weakening the dollar.
The investigation found nothing. It was closed. And now the person who launched it is getting the Fed chair he wanted.
What Comes Next
Powell’s term expires next month. Whether Trump moves to remove him before then or allows him to serve out his final weeks remains unclear. Warsh, once confirmed, would inherit a Fed that has spent months resisting political pressure and a set of interest rate decisions that have frustrated the White House.
Whether Warsh maintains that independence once confirmed, or whether the entire exercise was designed to install a Fed chair more willing to take orders, is a question markets and economists are already asking out loud.
Warren has it. The probe that found no crime opened a door. The door is now open.