WASHINGTON — In a surprising about-face, Jeanine Pirro, the U.S. attorney for the District of Columbia, announced Friday that she would be dropping an investigation into Federal Reserve Chairman Jerome Powell that critics had labeled as politically motivated since it became public in January.
That investigation, which focused on whether Powell had lied to Congress about the $2.5-billion renovation of the central bank’s headquarters, had emerged as a stumbling block in President Trump’s effort to install his pick to succeed Powell.
Sen. Thom Tillis (R-N.C.) had said he would block the nomination of Kevin Warsh to be the next chairman of the Federal Reserve as long as the Powell investigation continued.
While the Justice Department’s investigation is now closed, the bank’s inspector general will take on the investigation into the costly renovations instead, and Pirro did not rule out the possibility of resuming her criminal investigation.
“Note well, however, that I will not hesitate to restart a criminal investigation should the facts warrant doing so,” Pirro wrote on X.
White House spokeswoman Karoline Leavitt also told reporters later that Pirro’s announcement did not signal the end of the investigation.
“This has been a priority for the president,” she said.
Tillis did not respond to requests for comment.
Powell was first appointed to the role by Trump in 2017 but fell out of the president’s favor by resisting his pressure campaign to lower interest rates.
The bank has historically enjoyed greater independence than other federal agencies to insulate its decision-making from political influence.
The limits of the bank’s independence are currently being tested by Trump’s attempt last August to fire one of Powell’s colleagues, Federal Reserve Governor Lisa Cook, over allegations that she committed mortgage fraud.
Cook protested her firing and the Supreme Court heard arguments from her and the administration in January. The court’s decision, which has not yet been rendered, could determine whether officials at the bank are more insulated from being fired by the president than officials at other federal agencies.
While Powell didn’t comment on the news that Pirro had dropped her investigation, he said in March that he had “no intention of leaving the Board until the investigation is well and truly over, with transparency and finality.”
The case had already suffered a significant blow in March when James Boasberg, a U.S. district judge for the District of Columbia, quashed subpoenas targeting Powell.
Several former federal prosecutors said Powell is one of several political enemies of the president who have found themselves the targets of criminal investigations into statements they made to Congress, including former CIA Director John Brennan and former FBI Director James Comey.
“The basis for the investigation into Jerome Powell was always suspect in light of President Trump’s public complaints about his refusal to lower interest rates on demand,” said Barbara McQuade, a former U.S. attorney for the Eastern District of Michigan.
The political calculations that seemed to underpin the decision to begin the Powell investigation — and ultimately drop it — marked a significant break from prior precedent, said Greg Brower, a former U.S. attorney for Nevada.
“If you spoke to 100 former U.S. attorneys I don’t think you’d find one who would say that they felt political pressure to bring a case or not bring a case,” he said.
Pirro’s decision could clear the way for Warsh’s nomination to proceed.
Warsh has walked a tightrope at confirmation hearings before the Senate Banking Committee, where he sought to convince senators that he will not be a “sock puppet” for the president and Wall Street, as Donald Trump continues to demand the Fed lower interest rates.
His nomination has been met with scrutiny from Senate Democrats on the committee, who question his close ties to Trump and Wall Street investors.
“The president never once asked me to commit to any particular interest rate decision, period,” Warsh said at a hearing. “Nor would I ever agree to do so if he had.”
Those comments came just hours after Trump, in an interview on CNBC, was asked if he would be disappointed if Warsh didn’t immediately cut rates and responded, “I would.”
A former Fed governor during the financial crisis, Warsh later emerged as a critic of the central bank’s prolonged low interest rate policies and heavy-handed market interventions. He later researched economics at the Hoover Institution, sat on the board of UPS and worked as a private equity consultant.
With a net worth estimated between $135 million and $226 million, Warsh would become the wealthiest Federal Reserve Chairman in history.
If confirmed, he has proposed a “regime change” in Fed policy in favor of pro-growth, market-first approaches.
“Status quo practices and policies are especially harmful when the world is changing this fast,” Warsh told lawmakers at his Senate confirmation hearing this week.
Warsh has signaled an interest in slashing the Fed’s $6.6-trillion balance sheet, which he says has become too “bloated.”
Since the 2008 financial crisis, the Fed has bought trillions of dollars in bonds to prop up the economy and housing markets. But Warsh says that safety net is no longer needed.
He’s proposed the Fed sell off the bulk of its assets and print less money, moves he argues will effectively shift the power to set interest rates to the private market. Critics worry that such a move would destabilize the economy and cause mortgage rates to spike.
“My simple version of this is: Run the printing press a little bit less. Let the balance sheet come down,” he told Fox Business last year.
Michael Gapen, chief U.S. economist at Morgan Stanley, said that a rapid shift in the Fed’s footprint under Warsh is “unlikely.” While reducing reserves is a long-term goal, Gapen said, slashing assets could make the financial system less resilient in periods of economic stress.
“There is no free lunch,” he said.
Since the financial crisis, the Federal Reserve has been involved in predicting the economic future of the U.S. economy. The practice is known as “forward guidance,” a tool the Federal Reserve economists use to communicate their future interest rate intentions.
Warsh wants to do away with forward guidance, but has declined to address how he would approach interest rate decisions if confirmed.
“I don’t believe that I should be previewing for you what a future decision might be,” he said in an exchange with Sen. Chris Van Hollen (D-Md.).
This article includes reporting by the Associated Press.
