Justice Department Drops Criminal Investigation Into Federal Reserve Chair Jerome Powell

The Justice Department announced Friday that it was dropping its criminal investigation into the Federal Reserve and its chair, Jerome H. Powell, in a stunning reversal that could clear the path for President Trump's nominee to lead the central bank. The decision came just two days after Jeanine Pirro, the U.S. attorney for the District of Columbia, had vowed to continue the investigation despite a federal judge dealing the inquiry a crippling blow in court last month. The move reflected the reality that Trump, who has spent years trying to get rid of Powell and pressuring him to lower interest rates, would not be able to install his choice for the job while the inquiry continued.

The investigation had focused on whether Powell lied to Congress about costly renovations of the Fed's headquarters, with Trump continually blasting and inflating the price of the $2.5 billion project. The president said earlier this week that he had to "find out how this can happen," maintaining his criticism of the renovation costs. The criminal probe had created a dark cloud over the institution and raised serious questions about the Fed's ability to operate independently from political pressure.

Even after prosecutors halted their work, the Trump administration sought to frame the inquiry as ongoing. Karoline Leavitt, the White House press secretary, pointed to an independent review underway by the Fed's inspector general, telling reporters that "the investigation still continues, it's just under a different authority." Pirro insisted Friday that she would "not hesitate to restart a criminal investigation should the facts warrant doing so," creating lingering uncertainty about whether Powell and the Fed might face future scrutiny.

The decision removes the immediate threat of further escalation against the Fed and potentially clears a path for Kevin M. Warsh, Trump's nominee for Fed chair, to succeed Powell, whose term ends on May 15. Trump had been defiant in the days before prosecutors dropped the investigation, and the move reflects his willingness to use the criminal justice system as a tool to achieve political outcomes. Senate Banking Committee Republican Thom Tillis of North Carolina had vowed to block any nominee until the legal threats against Powell were dropped.

The ramifications for the central bank are likely to prove much longer lasting than the investigation itself. What will be far harder to recoup is confidence in the Fed's ability to operate independently from a White House that has shown little restraint in its efforts to bully the central bank into slashing interest rates. The episode has demonstrated Trump's repeated pattern of pushing prosecutors across the country to investigate his adversaries even in the face of scant evidence or legal justification, raising concerns about the politicization of federal law enforcement.