WASHINGTON — The Department of Justice announced Friday that it is dropping its criminal investigation into Federal Reserve Chair Jerome Powell, a move that could clear the way for the confirmation of his successor amid mounting pressure from key senators. The probe, centered on alleged cost overruns in a major renovation project at the Fed's Washington headquarters, had stalled nominations and raised questions about political interference in the central bank's operations.
District of Columbia U.S. Attorney Jeanine Pirro, who led the investigation, detailed the decision in a post on X, formerly known as Twitter. "This morning the Inspector General for the Federal Reserve has been asked to scrutinize the building costs overruns -- in the billions of dollars -- that have been borne by taxpayers," Pirro wrote. "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."
Pirro emphasized that her office would close the probe while the Fed's independent inspector general takes over the review. "Accordingly, I have directed my office to close our investigation as the IG undertakes this inquiry," she added. However, she left the door open for further action, stating, "Note well, however, that I will not hesitate to restart a criminal investigation should the facts warrant doing so."
The investigation stemmed from concerns over the $2.5 billion renovation of the Federal Reserve's headquarters in Washington, a project that has drawn scrutiny for its escalating costs. The Fed's inspector general had already conducted an audit in 2021, and Powell himself requested a fresh examination last year. Sources familiar with the matter told ABC News that senior DOJ officials had recently informed senators, including Republican Sen. Thom Tillis of North Carolina, about the plan to drop the probe and refer it to the internal watchdog.
Sen. Tillis, a member of the Senate Banking, Housing, and Urban Affairs Committee, played a pivotal role in pressuring the DOJ to end the inquiry. In January, Tillis announced he would block all Fed nominees, including the chair position, until the matter was resolved. "If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none," Tillis said in a statement at the time. "It is now the independence and credibility of the Department of Justice that are in question. I will oppose the confirmation of any nominee for the Fed -- including the upcoming Fed Chair vacancy -- until this legal matter is fully resolved."
Tillis's stance created significant hurdles in the narrowly divided Senate, where his position on the Banking Committee made it impossible for President Donald Trump's nominee, former Fed Governor Kevin Warsh, to advance without his support. All Democrats on the committee also opposed Warsh's nomination, further complicating the process. Tillis told ABC News on Tuesday that he supports Warsh but would not move forward until the DOJ probe was dropped.
The announcement comes just weeks before Powell's term as Fed chair is set to expire next month. In March, Powell indicated he would remain in the role until Warsh is confirmed, ensuring continuity at the central bank during the transition. A spokesperson for the Federal Reserve declined to comment on the development when reached by ABC News, as did a representative for Tillis.
The probe had faced legal setbacks prior to Friday's decision. Last month, D.C. District Judge James Boasberg ruled that subpoenas issued by Pirro's office to Powell were invalid, tossing them out. Pirro pushed back forcefully at the time, insisting the investigation would continue. During a news conference on Wednesday, she said, "This investigation continues. I am in the legal lane. There are others who are in the political lane. I don't intersect those two lanes."
Pirro also announced plans to appeal Boasberg's ruling. "I am going forward," she declared. "We are appealing the decision of Judge Boasberg -- the idea that a judge can stand at the door of a grand jury and tell a prosecutor you're not allowed to go in when the United States Supreme Court has said you can go into a grand jury based on rumors and suspicion, is an order that we think must be appealed, and we are continuing in this investigation."
Sen. Tillis had urged Pirro to abandon the effort following the judge's decision. In a post on X shortly after the ruling was made public in March, Tillis wrote, "We all know how this is going to end and the D.C. U.S. Attorney's Office should save itself further embarrassment and move on. Appealing the ruling will only delay the confirmation of Kevin Warsh as the next Fed Chair." It remains unclear whether prosecutors will now drop their appeal in light of the decision to close the probe.
Powell first publicly addressed the investigation in a video message in January, framing it as an attempt by the Trump administration to exert political pressure on the Federal Reserve. He suggested the probe was aimed at influencing the central bank's decisions on interest rates, which have remained elevated amid ongoing inflation concerns. The Fed has been navigating a delicate balance between controlling inflation and supporting economic growth, with rate cuts delayed longer than many anticipated.
The renovation project at the Fed's Eccles Building, located at 20th Street and Constitution Avenue NW in Washington, began in 2014 and was initially budgeted at around $500 million. Costs ballooned over the years due to design changes, supply chain issues, and other factors, reaching $2.5 billion by recent estimates. Critics, including some lawmakers, have questioned whether taxpayer funds were mismanaged, though the Fed has defended the project as necessary for modernizing its facilities to handle advanced economic analysis and security needs.
The inspector general's upcoming review could provide more clarity on the overruns. As an independent entity within the Fed, the IG reports directly to Congress and has the authority to investigate internal operations without interference from Fed leadership. Powell's request for this fresh look last year was seen by some as an effort to demonstrate transparency and address concerns proactively.
Friday's development marks a significant de-escalation in what had become a flashpoint between the executive branch and Congress over the Fed's autonomy. The central bank has long prided itself on operating independently from political influences, a principle enshrined in law since its founding in 1913. Past administrations, including those led by both parties, have occasionally clashed with Fed chairs over monetary policy, but the use of a criminal probe to scrutinize operations was unprecedented and drew widespread criticism from economists and former officials.
With the probe now referred internally, attention shifts to Warsh's confirmation process. As a former Fed governor from 2006 to 2011, Warsh is viewed by supporters as a strong candidate with deep experience in financial regulation. Trump nominated him in late 2023, praising his approach to deregulation and economic growth. However, Warsh's confirmation hearings could still face scrutiny over his views on interest rates and Fed independence, especially given the timing of the probe's closure.
Sen. Tillis's blockade had broader ripple effects, delaying not only the chair nomination but also other Fed board appointments critical for the bank's functioning. The Senate Banking Committee, chaired by Sen. Tim Scott of South Carolina, has been working to advance Trump's financial agenda, but Tillis's hold demonstrated the leverage individual senators can wield in a closely divided chamber. Republicans hold a slim majority of 53-47, making unified party support essential for contentious nominations.
Looking ahead, the inspector general's report could reignite debates if it uncovers new issues. Pirro's office has indicated it will monitor the findings closely, potentially reopening the case if evidence of wrongdoing emerges. For now, the decision to drop the probe appears to resolve the immediate impasse, allowing the Fed to focus on its core mandate amid a complex economic landscape marked by geopolitical tensions and domestic uncertainties.
The episode underscores ongoing tensions between the Trump administration and institutional watchdogs. Similar pressures have been reported in other areas, such as environmental regulations and trade policy, where executive actions have tested the boundaries of agency independence. As Powell prepares to step aside, the Fed's next chapter under Warsh—if confirmed—will likely emphasize continuity while adapting to evolving challenges like artificial intelligence in finance and global supply chain disruptions.