Jerome Powell must decide whether to leave the Fed when his chair term ends May 15 after the Justice Department closed its criminal probe for now.
Federal Reserve Chair Jerome Powell is entering the final weeks of his term with a new decision before him: whether to leave the central bank entirely or remain as a governor after the Justice Department closed its criminal investigation into renovations at Fed headquarters.
The move, announced Friday by U.S. Attorney Jeanine Pirro, shifts scrutiny of the Washington headquarters project to the Federal Reserve’s inspector general. It also removes, at least for now, a major obstacle to Senate consideration of President Donald Trump’s nominee to succeed Powell as chair, Kevin Warsh.
Pirro said her office would close its investigation while the inspector general examines cost overruns in the renovation project. But she left open the possibility that prosecutors could return to the matter, writing that she would “not hesitate to restart a criminal investigation should the facts warrant doing so.”
That caveat matters for Powell, who had said he would stay until the criminal probe was resolved. His term as chair ends May 15, but his term as a Fed governor runs until early 2028. Most Fed chairs have left the board when their leadership terms ended, but Powell’s choice now carries unusual weight because of the broader fight over the central bank’s independence.
Trump has repeatedly pressed the Fed to cut interest rates and has threatened to fire Powell if he does not leave voluntarily. The investigation into Powell was criticized by Democrats and former Fed officials as an attempt to pressure him and the central bank. A federal judge in March blocked subpoenas issued to the Fed’s Board of Governors, finding they were issued for the improper purpose of pressuring Powell to lower rates or resign.
Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a note that Powell might have left the Fed entirely on May 15 if the investigation had never happened. But Guha said the Justice Department’s move may have come too late, and the threat of reopening the probe may be too unresolved, for Powell to depart immediately.
“Our hunch is Powell will stay on as a regular Fed governor for some months in order to avoid any impression of a de facto plea deal or exit under pressure,” Guha wrote.
If Powell leaves now, Trump would get another opening on the seven-member Board of Governors. Counting Warsh, Trump would have three appointees on the board, including Christopher Waller and Michelle Bowman from his first term. A board majority does not by itself set interest rates, which are decided by the Federal Open Market Committee, but it can influence personnel and some policy operations.
The confirmation question is moving at the same time. Sen. Thom Tillis, a North Carolina Republican on the Senate Banking Committee, had said he would not support moving forward with Warsh while the criminal investigation remained active. The White House said Friday it remained confident Warsh would be confirmed, while Senate Banking Committee Chairman Tim Scott welcomed continued inspector general scrutiny of the renovation costs.
Democrats were not persuaded that the issue was resolved. Sen. Elizabeth Warren, the committee’s top Democrat, said the announcement was an attempt to clear the way for Warsh and pointed to Pirro’s warning that the Powell probe could be restarted. Warsh, who testified this week, told senators he had made no promise to Trump on interest rates and said monetary policy independence was essential.
The underlying renovation project remains under review. The Fed’s inspector general has been evaluating the building work since July and said it is working to complete a review that will be made available to the public and Congress. The project, first approved in 2017 and expected to finish next year, has risen in estimated cost from $1.9 billion to nearly $2.5 billion. The Fed has cited design changes, higher labor and materials costs, and unforeseen conditions such as soil contamination and asbestos.
The immediate question now returns to Powell. He is scheduled to hold his regular news conference Wednesday after the Fed’s policy meeting, giving investors and lawmakers their next chance to learn whether he plans to leave, stay temporarily or serve out the rest of his governor term.
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