Don’t bet on Jerome Powell leaving the Federal Reserve anytime soon.
That’s the strong message from veteran Fed watchers in the aftermath of the Department of Justice dropping its criminal investigation into whether the Fed Chair lied to Congress last year over the $2.5 billion renovations at its D.C. headquarters.
Powell and others called the unprecedented criminal probe of a sitting Fed Chair a “pretext” from the White House to force the central bank into drastically slashing the benchmark federal funds rate to 1% or below.
U.S. Attorney Jeanine Pirro, a longtime ally of President Donald Trump, said in an April 24 social media post that her office was ending the investigation.
“Note well, however, that I will not hesitate to restart a criminal investigation should the facts warrant doing so,’’ Pirro said in her post.
Ay, there’s the rub.
Powell supporters, including top Senate Democrats, say that Pirro’s thinly veiled threat to go after the Fed chair in the future is a roadblock to Powell stepping away from the Board of Governors when his term as Chair expires on May 15.
It also leaves a shadowy stain of “lasting damage” to the Fed.
Powell, a strict Fed institutionalist devoted to central bank independence, has not commented publicly on Pirro’s abrupt reversal.
But he told reporters last month that he would remain as a Fed governor — that term expires in January 2028 — until all aspects of the unprecedented probe were permanently closed.
“Powell has kept his cards close to his chest. If the investigation had never taken place we think he would have left the Fed completely on May 15,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a note, as reported by CNBC.
“But, we think the DoJ move may well have come too late — and the threat of restarting the probe is too inconclusive — for Powell to leave on May 15,” the note said.
DOJ acted just days after Warsh’s Senate confirmation hearing
A federal judge last month blocked two subpoenas from Pirro’s office to the Fed’s Board of Governors, Reuters indicated, finding they were issued for the improper purpose of pressuring Powell to cave to PresidentTrump’s demands to rapidly lower interest rates or resign.
Meanwhile, former Fed Governor Kevin Warsh, the president’s candidate to replace Powell, finally appeared before the Senate Banking Committee on April 21, where Republican Sen. Thom Tillis repeated his vow to hold up the nomination until the “bogus” DOJ probe ended.
Pirro held a press conference the next morning to reinforce that the Powell probe remained active. The following day, CNBC reported, Warsh met with Treasury Secretary Scott Bessent and Senate Majority Leader John Thune.
Phone calls were made. And Pirro’s X post appeared the next morning.
Photo by WW News on Getty Images
DOJ probe could have “lasting damage”
Economists, market experts, and legal analysts have long contended that central bank independence from political influence by the executive branch is critical.
Columbia Law School Professor Kathryn Judge said she feared “lasting damage” from the investigation into Powell — not only for the Fed, but also for policymakers across government.
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“The Fed, so far, has proved resilient in ways that have proved quite helpful for the broader economy,” Judge, a Supreme Court law clerk for retired Justice Stephen G. Breyer, told The New York Times.
Judge also said the country “cannot take for granted” that the Fed “will continue to prove resilient as it takes hit after hit from this administration.”
Senate could confirm Warsh by May 15 deadline
Tillis has not commented publicly on the DOJ action.
Two Senate Democrats, Elizabeth Warren of Massachusetts and Dick Durbin of Illinois, sent Pirro a scathing letter late on April 24 calling the DOJ probe merely “temporarily paused.”
Related: Markets reset Fed rate-cut bets as DOJ drops Powell probe
“Your announcement leaves the door wide open for you to relaunch the criminal probe against Chair Powell — or future baseless investigations into Powell or other Fed Governors and a future Fed Chair — should it once again become politically expedient for you to do so,” the letter said.
The Senate is in session this coming week and the week of May 11, leaving enough time for the banking committee and the full Senate to approve Warsh.
Trump repeats threat to fire Powell
President Trump, in both administrations, has lashed out at Powell for not slashing interest rates, and said he would only nominate a replacement who would adhere to hismonetary policy demands.
Warsh testified at the Senate Banking Committee hearing that he did not tell the president he would lower interest rates if confirmed by the full Senate.
As I’ve reported, Trump said once again earlier this month that he would fire Powell if the Fed Chair didn’t resign by May 15.
A decision by the Supreme Court is expected any day regarding whether the president can fire Fed Governor Lisa Cook over unsubstantiated allegations of mortgage fraud.
The high court has previously indicated that the Fed is an independent agency exempt from executive control.
Powell will undoubtedly be asked to comment on his future at the April 29 news conference following the Federal Open Market Committee meeting where policymakers are broadly expected to hold rates steady at 3.50% to 3.75%.
Warsh calls for “regime change” at Fed
Warsh, who served as a Fed governor from 2006 to 2011, has been highly critical of the central bank since leaving it.
Both before and during the Senate confirmation hearing, he called for a “regime change” in the way the Fed conducts monetary policy.
He also said central bank officials should adopt a different method of addressing inflation, but offered few specific examples.
The note by Evercore ISI economists called Warsh’s comments “provocative,” adding that they could increase the odds of Powell staying at the Fed in a bid to safeguard it.
“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 said in the note.
Related: Investors question Warsh’s future impact on markets
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