A major border crossing for any new Federal Reserve chair has been the outstanding Department of Justice investigation into current Chair Jerome Powell.
The DOJ had, at the behest of Donald Trump, been running an investigation into Powell and the Fed to see if they had lied to Congress about a $2.5 billion renovation of the central bank’s Washington, D.C. headquarters. In a highly unusual move, Powell delivered a “rare rebuke,” describing the action as part of an effort by Trump to pressure policymakers to lower interest rates, as the New York Times recapped in a larger report on Friday.
Senator Thom Tillis (R-NC) has said that until the DOJ dropped its “bogus investigation into Chairman Powell that threatens the independence of the Fed,” he, as a major voice on the Senate Banking Committee, would block Trump’s nomination of Kevin Warsh as Fed chair, to start when Powell’s term ends next month.
Two days after saying on April 22, 2026, that she would continue the investigation over allegations of the central bank wasting money, US Attorney for the District of Columbia Jeanine Pirro posted online that “the Inspector General for the Federal Reserve has been asked to scrutinize the building costs overruns.”
“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,” she wrote, so closed the DOJ investigation while preserving the option to restart it “should the facts warrant doing so.”
That barrier is down. However, as Oxford Economics puts it in an emailed note, “Warsh is in, but many questions remain.”
Start with Warsh’s assumed confirmation. Again, the chair of the Federal Reserve has a great deal of power, but much of it is soft. They work most effectively through persuasion, modeling, and embracing leadership. A chair doesn’t have the power to order the Fed’s major decisions because they involve votes by a group of officials who have their own expertise and access to qualified staff.
Trying to understand what Karsh will do in the position is difficult. Oxford Economics wrote: “The incoming Fed chair, Kevin Warsh, cleared a major hurdle as the Justice Department dropped its probe of Powell, but his likely confirmation hardly settles the bigger question of which way he’ll lean on rates. His Senate testimony offered few clues — he acknowledged full employment, criticized past policy missteps, and declined to tip his hand on cuts.”
There are other issues as well. March retail sales were large, but mostly due to costlier energy prices, because of the war in Iran, and government reports on consumer goods are subject to statistical uncertainty and generally, including March, can’t definitively say whether there even was a change in sales.
“The Mideast conflict remains the economy’s wildcard, with oil-induced inflation complicating the Fed’s calculus — pushing near-term prices higher while squeezing consumer purchasing power in ways that could slow growth,” the firm said. “The result is a policy standoff, raising the odds that a rate cut will be delayed until the second half of the year.”
If conditions allow a cut even then.
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