Bankinter | The Department of Justice has closed its investigation into Jerome Powell over cost overruns in the renovation of the Fed’s headquarters. US Attorney Jeanine Pirro stated that, instead, she has asked the Fed’s internal oversight body — the Office of the Inspector General — to examine the cost overruns in the renovation of the central bank’s headquarters in Washington. With the review being transferred to the internal oversight body, the focus shifts from a criminal legal front to internal control and audit of expenditure.
Analysis team’s view: Good news. The closure of the investigation removes institutional uncertainty at the top of the Fed and facilitates the progress of Kevin Warsh’s confirmation process as Fed chair. Warsh’s confirmation had been blocked by the Senate Banking Committee, as one of its members (Thom Tillis) opposed moving forward whilst the Department of Justice kept the criminal investigation against Powell open. He considered that this would amount to allowing a criminal investigation to be used as a political weapon against the Fed Chair, undermine the central bank’s independence and set a dangerous precedent. Tillis’s vote was decisive in the Banking Committee. The Republicans held only a narrow majority (13-11) on the Committee. If Tillis voted against the nomination alongside the Democrats, it could not proceed. With the investigation closed and the matter referred to the Fed’s Inspector General (via administrative, not criminal, channels), the condition imposed by Tillis is removed. The closure of the investigation into Powell eliminates the criminal risk, unblocks Warsh’s nomination and reintroduces the prospect of a potentially more dovish Fed into the market.
