DOJ’s partial reversal on Powell probe keeps Fed drama alive

(Bloomberg) — A decision by US District Attorney Jeanine Pirro to drop a criminal probe into the Federal Reserve potentially clears a path for President Donald Trump’s nominee to take over the central bank. What it won’t do is secure the current Fed chair’s departure.

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Jerome Powell has pledged to remain at the US central bank until the Department of Justice probe, related to cost overruns in a building renovation, is completed “with transparency and finality.” It’s not clear that Pirro’s move, which defers the investigation to the Fed’s own Office of Inspector General, will meet that test. When announcing the decision Friday, Pirro also said she would “not hesitate to restart a criminal investigation should the facts warrant doing so.”

That suggests continued pressure from the Trump administration that could motivate Powell to stay at the Fed even if the president’s nominee to replace him, Kevin Warsh, is confirmed by the Senate. While Powell’s term as chair ends on May 15, his seat on the Board of Governors doesn’t expire until 2028.

“I wouldn’t say it’s a slam dunk right now,” Brett Ryan, a senior economist at Deutsche Bank, said of the chances that Friday’s announcement will convince Powell to retire. “Pirro kind of left open the possibility of taking up the case again, and that may give Powell some pause in terms of leaving his board seat.”

Warsh, who appeared before the Senate Banking Committee in a confirmation hearing this week, has broad support from GOP lawmakers. But a key Republican senator, Thom Tillis of North Carolina, has promised to block his confirmation until the DOJ investigation is dropped.

Tillis has not commented publicly since Pirro’s announcement on Friday, though he’s set to be interviewed on NBC’s Meet the Press television program on Sunday morning.

Trump briefly commented on Warsh’s path ahead when asked by reporters Saturday, saying “I would imagine it’s smooth” now that Pirro has dropped the criminal investigation. But he declined to give an all-clear for Powell, citing the Fed inspector general’s inquiry and saying “I have an obligation to find out” what’s behind the cost overrun.

The Senate Banking panel moved ahead with scheduling a vote on Warsh’s nomination at 10 a.m. on April 29.

President Donald Trump speaks to reporters before boarding Air Force One at Palm Beach International Airport in West Palm Beach Fla., Saturday, April 25, 2026. (AP Photo/Manuel Balce Ceneta) · ASSOCIATED PRESS

Typically, Fed chairs leave the central bank after their leadership tenure ends — only one has stayed on past the end of their term as chair in the central bank’s 112-year history. If Powell sticks around, it would deny Trump the opportunity to name another person to the seven-member board, limiting his efforts to reshape the institution.

It could also lead to competing pillars of influence within the Fed at a pivotal time for monetary policy, generating confusion among the public and in financial markets about who is really in charge of the world’s most powerful central bank.

Trump has repeatedly lambasted Powell for not cutting interest rates faster, and made it clear that he expects the next Fed chair to do so. But Warsh, if confirmed, would have only one vote on the 12-member Federal Open Market Committee that decides on rates, meaning he would need to convince his colleagues to go along.

With Powell still on the board, that task could prove more challenging — especially if he doesn’t agree with the new chair.

“What we’re talking about sounds perfectly normal for the political part of DC — shifting coalitions and back-room negotiating — but that’s so far afield from what we’re accustomed to out of the Fed that it becomes disruptive,” said Stephen Stanley, chief US economist at Santander US Capital Markets LLC.

In his eight years as chair, Powell has led the Fed in a similar way as his predecessors, favoring a consensus-building approach. It has earned him widespread support from his colleagues, many of whom have publicly praised him in recent months since the launch of the DOJ’s investigation.

Fed officials have held rates steady this year as they work to tame persistently elevated inflation and monitor how the Iran war will affect the US economy. Inflation has been above the Fed’s 2% target for more than five years, and the oil shock from the conflict has sent gas prices soaring.

Warsh, who served as a Fed governor from 2006 to 2011, has been critical of the institution since leaving it. At his confirmation hearing on Tuesday, he called for a “regime change” in the way the Fed conducts policy. He also said officials should adopt a different framework for addressing inflation, but offered few specifics.

Evercore ISI economists led by Krishna Guha called the comments “provocative” and said 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 a note to clients.

—With assistance from Sam Kim, Josh Wingrove and María Paula Mijares Torres.

(Updates with Trump comments in seventh paragraph.)