DOJ Drops Powell Probe, Smoothing Warsh Path to Fed

The Justice Department is ending a controversial investigation into building-renovation cost overruns by the Federal Reserve, potentially clearing a path to confirmation for Kevin Warsh, President Donald Trump’s pick to be the next Fed leader.

US Attorney Jeanine Pirro said in a social media post Friday that the Fed Inspector General had been asked to scrutinize the cost overruns. She said she expects a report soon on the findings. Bloomberg International Economics and Policy Correspondent Mike McKee joins Paul Sweeney and Scarlet Fu on 'Bloomberg Intelligence' to discuss what happens next. The Justice Department is ending a controversial investigation into building-renovation cost overruns by the Federal Reserve, potentially clearing a path to confirmation for Kevin Warsh, President Donald Trump’s pick to be the next chair of the central bank.

Jeanine Pirro, US Attorney for the District of Columbia, said in a social media post Friday that the Fed’s Office of Inspector General had been asked to scrutinize the cost overruns. She said she expects a report soon on the findings.

“I have directed my office to close our investigation as the IG undertakes this inquiry,” Pirro said in the post. “Note well, however, that I will not hesitate to restart a criminal investigation should the facts warrant doing so.”

The Fed’s OIG is already conducting a review of the renovation of the central bank’s headquarters, which it opened last year at the request of Fed Chair Jerome Powell.

US Treasuries edged higher following the announcement, with shorter-dated notes leading gains as traders bet a Warsh-led Fed would be more inclined to cut interest rates. The two-year yield fell five basis points to 3.78%.

President Donald Trump and Federal Reserve Chair Jerome Powell

The White House said in a statement “American taxpayers deserve answers about the Federal Reserve’s fiscal mismanagement, and the Office of the Inspector General’s more powerful authorities best position it to get to the bottom of the matter.”

Pirro initiated a legal battle to serve subpoenas to the central bank as part of a criminal investigation into the cost overruns and congressional testimony Powell provided on the matter.

The investigation threw the Fed’s expected leadership transition into chaos, as Powell’s term as chair is scheduled to expire on May 15. Warsh, who appeared before the Senate Banking Committee this week, enjoys broad support among GOP lawmakers, but a key Republican senator, Thom Tillis of North Carolina, vowed to block his confirmation unless the DOJ investigation was dropped.

For his part, Powell vowed to remain at the Fed in his role as a member of its Board of Governors — his term for which extends into 2028 — until the probe was resolved “with transparency and finality.”

Tillis’ office didn’t immediately respond when asked for comment. The Fed declined to comment.

Impact Unclear

The DOJ move likely removes a major obstacle to Warsh’s confirmation, though it may not be enough Powell to leave the Fed, said Derek Tang of Monetary Policy Analytics Inc.

“I am unsure it meets Powell’s ‘finality’ precondition to leave the Fed,” Tang said. “After all, what’s to stop a probe from coming up again, once the White House gets Warsh confirmed? At that point, Tillis and Powell would have lost leverage.”

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