The U.S. Justice Department has concluded its investigation into Federal Reserve Chairman Jerome Powell concerning allegations of improper cost overruns during renovations of the Federal Reserve’s buildings. The probe, which had been initiated following accusations by former President Donald Trump, will now be handled internally by the central bank’s inspector general.
Shift to Internal Review
U.S. Attorney Jeanine Pirro announced the decision, stating that an internal investigation led by the Federal Reserve’s inspector general would proceed. This move comes amidst a protracted dispute between President Trump and Chairman Powell, largely centered on the escalating costs associated with the Fed’s building modernization projects.
A White House spokesman, Kush Desai, commented on the development, stating, “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.” He added, “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.”
Pirro, in a post on X, indicated that a criminal investigation could be reopened if new facts warrant it. The Federal Reserve itself declined to comment on the matter. The inspector general’s office confirmed it is actively working on its review and anticipates making the results public and available to Congress upon completion, though a specific timeline was not provided.
Background of the Dispute
The investigation into Powell gained prominence as part of a broader pattern of criticism from former President Trump, who had repeatedly called for the Fed to lower interest rates. Trump had also publicly floated the idea of firing Powell, a move that legal experts suggested could be unlawful. During months of public attacks, Trump characterized Powell as a “knucklehead” and accused him of “doing a lousy job” for ignoring calls for rate cuts.
Last summer, Trump specifically criticized the projected costs of the Federal Reserve building renovations, citing an estimated $3.1 billion (£2.3 billion), which exceeded the Fed’s initial forecast of $2.5 billion. The Fed, however, maintained that the renovations are expected to reduce its operational costs over time.
Powell’s Public Pushback
In January, Chairman Powell took the highly unusual step of publicly disclosing that the Justice Department had issued subpoenas to the Fed and had threatened a criminal indictment related to his testimony before a Senate committee regarding the building renovations. Powell described the investigation as “unprecedented” and suggested it was a direct result of Trump’s dissatisfaction with the Fed’s refusal to cut interest rates despite presidential pressure.
Powell articulated his concerns about the independence of the U.S. central bank, stating, “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead monetary policy will be directed by political pressure or intimidation.” He emphasized the importance of monetary policy being guided by economic data rather than political influence.
Lower interest rates generally make borrowing cheaper, stimulating economic activity, while higher rates tend to curb spending and help control inflation. Former President Trump, with a background in property development, has consistently favored lower interest rates and had expressed objections when the Fed raised rates during his term, arguing that high rates could harm the economy.
Senate Confirmation and Future Leadership
The timing of the Justice Department’s decision is significant, as the U.S. Senate is currently considering President Trump’s nominee, Kevin Warsh, to potentially replace Powell. Powell’s term as Fed chair is nearing its end. A key Republican senator, Thom Tillis, had previously indicated he would withhold support for Warsh’s nomination unless the Trump administration dropped its investigation into Powell, highlighting the political entanglement surrounding the Fed’s leadership.
The Federal Reserve buildings undergoing renovation are the Eccles and 1951 Constitution Avenue structures. These modernization efforts represent the first significant works since their construction in the 1930s and include crucial upgrades such as asbestos and lead contamination removal. Powell himself was initially nominated for the Fed chair position by President Trump in 2017.
Just last week, Trump had reportedly threatened to remove Powell from his position if he did not step down at the conclusion of his term next month. Powell’s current term is set to expire on May 15th, though he intends to remain in his post until his successor, Warsh, receives Senate confirmation. The resolution of the Justice Department’s probe removes a significant cloud of legal uncertainty that had been hanging over the Federal Reserve chairman and the central bank’s operational independence.
