WASHINGTON — The Department of Justice announced Friday that it is dropping its criminal investigation into Federal Reserve Chair Jerome Powell, a move that could pave the way for the Senate to confirm President Donald Trump's nominee to replace him, former Fed Governor Kevin Warsh.
The decision was revealed in a post on X by Jeanine Pirro, the top federal prosecutor in the District of Columbia. Pirro, who had vowed just days earlier to press forward with the probe, cited a shift in oversight to the Federal Reserve's internal watchdog as the reason for closing the case. The investigation had centered on alleged cost overruns in a multi-billion-dollar renovation of the Fed's headquarters in Washington, D.C., a project that has drawn scrutiny for its ballooning expenses.
Pirro's announcement comes after a federal judge quashed subpoenas issued by her office to the Federal Reserve earlier this week, effectively stalling the probe. On Wednesday, she had expressed commitment to continuing the investigation despite the setback. But by Friday, she directed her office to abandon it, redirecting the inquiry to the Fed's inspector general.
"The IG has the authority to hold the Federal Reserve accountable to American taxpayers," Pirro wrote in her X post. "I expect a comprehensive report in short order and am confident the outcome will assist in resolving, once and for all, the questions that led this office to issue subpoenas." She added, "Accordingly, I have directed my office to close our investigation as the IG undertakes this inquiry." Pirro cautioned, however, that "I will not hesitate to restart a criminal investigation should the facts warrant doing so."
The probe had been a significant obstacle to Warsh's nomination. Sen. Thom Tillis, a Republican from North Carolina who serves on the Senate Banking Committee, had placed an effective hold on the full Senate vote for Warsh until the criminal investigation was resolved. Tillis's stance reflected broader concerns among some lawmakers about proceeding with a confirmation while a sitting Fed chair faced potential charges.
White House spokesman Kush Desai welcomed the development in a statement, emphasizing accountability for what he called the Federal Reserve's "fiscal mismanagement." "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," Desai said. He expressed continued confidence in Warsh's confirmation, stating, "The White House remains as confident as before that the Senate will swiftly confirm Kevin Warsh as the next Federal Reserve Chairman to finally restore competence and confidence in Fed decision-making."
Powell and other Fed officials have long maintained that the investigation was politically motivated, allegedly launched to pressure the central bank into lowering interest rates in line with Trump's preferences. Trump, who has frequently criticized Powell's rate policies during his presidency, nominated Warsh in late 2025 as part of an effort to reshape the Fed's leadership. Warsh, who served on the Fed's Board of Governors from 2006 to 2011, has been seen as more aligned with Trump's economic views, particularly on deregulation and monetary policy.
The headquarters renovation project, which began in 2019, was initially budgeted at around $1.2 billion but has reportedly escalated to over $2.5 billion due to delays, supply chain issues, and design changes. Critics, including some congressional Republicans, have pointed to it as an example of wasteful spending at the independent central bank. The Fed has defended the project as necessary for modernizing its aging facilities and ensuring operational security.
Senate Banking Committee Chairman Tim Scott, a Republican from South Carolina, had earlier this week called for ending the criminal probe and handing oversight to Congress. In a CNBC interview on Wednesday, Scott argued that shifting the matter would expedite Warsh's confirmation and allow for greater transparency. "Switching the probe was essential to getting Warsh confirmed as chair, after which the information relevant to the project could be made available," Scott said.
Scott proposed collaborating with the House Financial Services Committee to form a permanent oversight body for construction projects under the banking committee's jurisdiction. "Wherever that leads us, we should go. If that leads to a criminal referral, so be it," he remarked. "But give us Kevin Warsh at the Fed so that we have access to all the information necessary." Notably, Scott described Powell as "incompetent, not criminal," distinguishing between policy disagreements and legal wrongdoing.
The timing of Pirro's decision aligns closely with these congressional pressures. Tillis's hold, in particular, had delayed a committee vote scheduled for early April, pushing back the full Senate confirmation process that Trump hoped to complete before the summer. With the probe now closed, sources close to the Senate Banking Committee indicate that a vote on Warsh could occur as early as next week, assuming no new objections arise.
Pirro's office did not immediately respond to requests for further comment from CNBC, nor did Warsh, Tillis, or other committee members. The White House has framed the nomination as a step toward restoring public trust in the Fed, which has faced criticism from both sides of the aisle over its handling of inflation and interest rates in recent years. Democrats on the Banking Committee, including Sen. Elizabeth Warren of Massachusetts, have voiced concerns about Warsh's past advocacy for lighter regulation, though they have not publicly tied their opposition to the Powell probe.
The episode underscores ongoing tensions between the Trump administration and the Federal Reserve, an institution designed to operate independently from political influence. Powell's term as chair is set to expire in May 2026, but he could remain on the Fed's Board of Governors until 2028. If confirmed, Warsh would step into the role amid a delicate economic landscape, with inflation hovering around 3% and the labor market showing signs of cooling.
Beyond the immediate nomination fight, the handover to the Fed's inspector general could lead to a more thorough examination of the headquarters project. The IG, as an internal watchdog, has subpoena powers within the Fed and a track record of investigating internal matters without the political overtones of a DOJ probe. Pirro's statement suggests she views this as a complementary step, potentially yielding findings that could either vindicate the Fed or prompt further action.
As the Senate prepares to act on Warsh's nomination, the broader implications for monetary policy remain a focal point. Trump's push for a Fed more responsive to his administration's goals has drawn warnings from economists about the risks to the central bank's credibility. Yet supporters argue that fresh leadership could inject needed dynamism into decision-making at a time when global economic uncertainties, from trade tensions to geopolitical conflicts, loom large.
For now, the dropping of the probe marks a pivotal win for the White House, clearing a key procedural barrier. Whether it resolves the underlying questions about Fed spending and accountability will depend on the inspector general's forthcoming report, expected in the coming months. In the meantime, all eyes are on Capitol Hill, where the confirmation battle could still face hurdles from those wary of shifting the Fed's course under new leadership.