US justice department drops criminal investigation against Jerome Powell

• Republican Senator Thom Tillis had blocked Warsh's nomination until the investigation ended, and his vote was needed to advance the nomination through the Senate Banking Committee
• Powell publicly stated in January that the investigation was a 'pretext' meant to pressure the Fed to lower interest rates rather than a genuine inquiry into the renovation project
• The Supreme Court still must rule on Trump's firing of Fed Governor Lisa Cook, meaning the conflict between Trump and the Federal Reserve is not fully resolved

Summary: DOJ Drops Criminal Investigation Against Jerome Powell

The US Department of Justice has closed its criminal investigation into Federal Reserve Chair Jerome Powell, removing a key obstacle to confirming Kevin Warsh as his replacement. US Attorney Jeanine Pirro announced the closure, stating her office would defer to the inspector general's inquiry into a Fed headquarters renovation that exceeded budget.

Key Developments:

The investigation, made public in January, centered on the Fed renovation project but was characterized by Powell as a "pretext" to pressure the central bank into lowering interest rates. Powell defended the Fed's independence, warning against monetary policy being driven by "political pressure or intimidation."

Political Implications:

Republican Senator Thom Tillis had blocked Warsh's nomination until the investigation ended, and his vote was crucial for Senate Banking Committee approval. Powell's term ends May 15th. The decision drew bipartisan criticism, with concerns about central bank independence from White House influence.

Background:

President Trump has repeatedly criticized Powell as an "enemy" for resisting rate cuts. During Senate hearings, Warsh—a former investment banker and Fed governor—aligned with Trump's preference for lower interest rates, raising Democratic concerns about his independence.

Ongoing Tensions:

Despite closing this investigation, Trump defended it last week, citing potential "incompetence, corruption or both." Additional Fed-related controversy continues, as the Supreme Court must rule by June on Trump's firing of Fed Governor Lisa Cook, whose removal was temporarily blocked by federal court.

The situation highlights ongoing tensions between the White House and the Federal Reserve over monetary policy independence, a cornerstone economists consider essential for economic stability.