The U.S. Attorney's Office for the District of Columbia announced the suspension of the criminal investigation into Powell, while reserving the right to reopen the investigation. This move clears an obstacle in the confirmation process for Wash's nomination, and expectations for a Federal Reserve rate cut have slightly increased.
On Friday, Piro, the U.S. Attorney for the District of Columbia, announced that he would halt the investigation into the construction costs of the Federal Reserve building led by Federal Reserve Chair Powell. The Federal Reserve's independent inspector general has been asked to review the Fed’s expenditures. However, he also added that if necessary, the investigation into Powell could be restarted without hesitation.
Previously, according to multiple sources familiar with the matter who spoke to ABC News, the U.S. Department of Justice is expected to drop the criminal investigation into Federal Reserve Chair Powell as early as this Friday, ending a standoff that could have delayed the confirmation process for Powell’s successor and clearing obstacles for Trump’s nominee for the next Federal Reserve Chair.
Sources said that senior officials from the Department of Justice recently proactively contacted several senators, including Republican Senator Thom Tillis, a member of the Senate Banking Committee, to formally notify them of the plan to dismiss the case—not only will the criminal investigation into Powell be terminated, but matters related to alleged cost overruns in the renovation project of the Federal Reserve’s Washington, D.C., headquarters will be handed over to the Federal Reserve’s internal oversight body (the independent inspector general) for handling.
Notably, the Federal Reserve’s inspector general had already conducted a special audit on the renovation costs of the building in 2021, and Powell himself had voluntarily requested last year that the inspector general conduct a comprehensive re-examination of this $2.5 billion project.
Currently, Powell’s term as Federal Reserve Chair is set to officially expire next month. However, in March this year, he clearly stated that he would continue serving until Kevin Warsh, Trump’s nominee as his successor, is confirmed by the Senate, avoiding a leadership vacuum at the Fed.
As of now, spokespeople for both the Federal Reserve and Tillis have declined to comment on the matter, and the Department of Justice spokesperson has yet to immediately respond to ABC News’ request for comment, with all parties maintaining a cautious stance.
Wash, personally selected by Trump, is widely regarded as someone who will push for interest rate cuts after taking office. The removal of the core obstacle blocking his nomination has undoubtedly bolstered the prospects of rate cuts. Pricing in federal funds rate swaps indicates that expectations for rate cuts by the Fed within the year have further intensified. Spot $XAU/USD (XAUUSD.CFD)$ prices surged briefly, touching $4,740 per ounce, with daily gains expanding to 1%.
As early as last month, Judge James Boasberg of the U.S. District Court for the District of Columbia ruled to dismiss the subpoena issued to Powell. However, federal prosecutor Piro maintained a tough stance.
After Judge Boasberg’s ruling to dismiss the subpoena in March, Tillis publicly urged Piro to drop the investigation to avoid further embarrassment. At the time, Tillis posted on social media: “The outcome was already obvious. The Office of the U.S. Attorney for the District of Columbia should avoid further embarrassment and stop while they still can. Appealing would only delay the confirmation process for Warsh as the next Federal Reserve Chair.”
Behind the Investigation: A Political Pressure Campaign Targeting the Federal Reserve
The criminal investigation surrounding Powell has been politically charged from the outset. In a video address in January this year, Powell first publicly disclosed the existence of the investigation and frankly stated that it was a political maneuver by the Trump administration to pressure the Federal Reserve into cutting interest rates, with the core aim of undermining the Fed's independence.
It is reported that the trigger for the investigation was the renovation project at the Federal Reserve’s Washington, D.C., headquarters. The District Attorney’s Office accused the project of severe cost overruns and suspected Powell of making false statements during his congressional testimony, thus initiating a criminal investigation and issuing a subpoena to Powell. However, Judge Bostberg ruled that the investigation lacked a legal basis and was essentially an attempt to pressure Powell through judicial means, forcing him to resign or compromise on rate cuts.
The biggest impact of this investigation has been stalling the confirmation process of Kevin Warsh, the Fed chair nominee put forward by Trump. As a key senator on the Senate Banking Committee, Tillis announced as early as January that he would block all Federal Reserve nominations to protest what he labeled as a “futile” and “unreasonable” investigation.
In a January statement, Tillis explicitly stated: “If there was any doubt about whether Trump administration aides were deliberately undermining the independence of the Federal Reserve, the answer is now clear. Today, the independence and credibility of the Department of Justice are being questioned. Until this legal issue is fully resolved, I will oppose all Federal Reserve nominations, including the upcoming vacancy for the position of Fed Chair.”
Breakthrough in Succession Stalemate: Warsh Confirmation Process Expected to Accelerate
Due to the evenly distributed seats on the Senate Banking Committee, Tillis’s obstruction made it difficult for Senate Republican leadership to bypass his stance. Coupled with unanimous opposition from all Democratic members of the committee against Warsh’s nomination, Warsh’s nomination remained stuck within the committee and could not proceed to a full Senate vote, causing the succession process to reach a deadlock.
However, with the disclosure of the Department of Justice’s plan to drop the case, this deadlock is expected to see a turning point. Tillis told ABC News on Tuesday that he personally supports Warsh as a nominee for Fed Chair but will not advance any procedures related to Federal Reserve nominations until the DOJ formally withdraws its investigation against Powell.
Now that the DOJ has clearly planned to withdraw the investigation, this likely means Tillis will lift his blockade against Warsh’s nomination. Warsh’s Senate confirmation process will significantly accelerate, with the possibility of completing confirmation before Powell’s term ends, allowing him to smoothly assume the role of Fed Chair.
It is reported that Warsh already held a nomination hearing for Fed Chair on April 21, but his nomination failed to move to the subsequent voting stage due to Tillis’s obstruction. With the conclusion of the investigation, Warsh’s nomination is expected to quickly restart the voting procedure, leading to the formal transition of leadership at the Federal Reserve.
Editor/KOKO