DOJ Drops Powell Probe, Clearing Path For Warsh As Next Fed Chair

The Department of Justice’s criminal investigation into Federal Reserve Chairman Jerome Powell is over for now.

The department is dropping its probe into Powell around over-budget renovation costs for the Fed’s headquarters, U.S. Attorney for the District of Columbia Jeanine Pirro announced on X Friday morning.

The development follows pressure from Republican Sen. Thom Tillis, who promised to block President Donald Trump’s next Fed chair appointee, Kevin Warsh, until the probe into Powell was dropped.

Tillis' vote is key to Warsh's confirmation as chair. He is one of 13 Republicans on the Senate Banking Committee, which must approve Fed chair appointments. His refusal to approve the appointment while an investigation is ongoing left the Republican committee members in a deadlock with the committee’s 11 Democrats, all of whom are expected to vote against Warsh's appointment.

Powell’s term as chair ends May 15, but he has said he would stay on as chair until a new appointee is confirmed. Trump, who has criticized Powell for keeping interest rates high, has threatened to fire the Fed chair if he attempts to stay beyond his term.

Powell's term as a Fed governor extends another two years, but it is unclear if he plans to stay on when his chairmanship ends.

Pirro directed the inspector general for the Federal Reserve to investigate the renovation project, which she said could lead to her criminal investigation restarting. The IG has already reviewed the project and found no wrongdoing, NBC News reported.

Powell has been under pressure to lower interest rates since Trump began his second term. The Fed cut rates three times last year by 25 basis points each time to its current benchmark of between 3.5% and 3.75%, but it has held rates flat since January. Trump believes they should be lower.

However, Powell has resisted calls to cut rates further, saying last month that inflation, fueled by tariffs and the conflict in Iran, would need to come down before he feels a rate cut is warranted. The consumer price index rose by 2.4% year-over-year in 2025, Bureau of Labor Statistics data shows, while hiring rates in February were at their lowest levels since the early pandemic.

Assuming he is approved as the next chair, Warsh will preside over a board that has been divided over whether further rate cuts are appropriate. The governors are unsure where the job market is going or how to interpret tariff impacts.

Warsh told the Senate Banking Committee during his Tuesday confirmation hearing that he wouldn’t allow the White House to sway his decisions on interest rates. But he would likely still face pressure from Trump, who told CNBC hours before the hearing that he would be “disappointed” if Warsh didn’t immediately lower rates.

How independent the Fed will be under Warsh is still a concern, economist Glen Hubbard told NPR ahead of the Tuesday hearing. 

“If the central bank is not independent, it simply can't do its job for price stability, for maximum employment and for financial stability,” he said.