Analysis: The threat to the Fed's independence isn't over

• Sen. Thom Tillis (R-N.C.) had blocked Warsh's nomination until the investigation was closed, viewing it as a threat to Fed independence from political pressure
• Pirro left the door open to restarting the probe, stating she 'will not hesitate to restart a criminal investigation should the facts warrant doing so' after reviewing the Fed inspector general's findings
• Trump has repeatedly demanded lower interest rates and suggested firing Powell before his term ends in January 2028, stating 'I'll have to fire him, OK? If he's not leaving on time' in an April 15 interview

Summary

Key Development: U.S. Attorney for Washington D.C. Jeanine Pirro announced Friday she would drop her investigation into the Federal Reserve's costly renovation projects and Chair Jerome Powell's testimony regarding cost overruns. However, she reserved the right to reopen the probe if warranted by the Fed's inspector general findings.

Political Implications: The decision clears a potential path for Kevin Warsh's confirmation as Fed Chair. Senator Thom Tillis (R-NC) had blocked Warsh's nomination progress while the investigation remained active, viewing it as a threat to Fed independence. Tillis has not yet confirmed whether he will now withdraw his opposition.

Ongoing Threats to Fed Independence: Experts warn the threat to Fed autonomy persists despite Pirro's move. President Trump has repeatedly attacked the Fed's independence, making lower interest rates a litmus test for his nominee. Trump previously nominated Powell in 2017 but grew dissatisfied with his interest rate policies.

Additional Pressure Points:

• Trump attempted to remove Governor Lisa Cook in August over alleged mortgage fraud; courts have allowed her to remain pending Supreme Court review (decision possible by Wednesday)
• Trump suggested on April 15 he might fire Powell, stating "I'll have to fire him, OK? If he's not leaving on time"
• Powell's term as governor extends through January 2028

Market Context: Warsh has pledged to maintain Fed independence, stating at his Tuesday confirmation hearing that "Fed independence is up to the Fed." However, concerns remain about how he'll withstand presidential pressure, particularly given Trump's history of directing normally independent agencies and his explicit focus on rate cuts.