The criminal investigation that imperiled the Federal Reserve chairmanship ended Friday morning.
The Department of Justice dropped its criminal probe against Federal Reserve Chair Jerome Powell, clearing the way for Kevin Warsh, President Donald Trump‘s nominee, to take the chairmanship when Powell’s term expires May 15.
What happened: U.S. Attorney for the District of Columbia Jeanine Pirro announced on X Friday morning that her office was closing the criminal probe of Powell tied to the Fed’s multi-billion-dollar headquarters renovation in Washington, D.C.
Pirro said the Federal Reserve’s inspector general had been asked that morning to scrutinize the cost overruns, and that her office would stand down while the Inspector General works.
Pirro added a caveat: she would not hesitate to restart a criminal investigation should the facts warrant.
Her move came three days after Warsh testified before the Senate Banking Committee, and just two days after she had publicly insisted the probe would continue.
Why it matters: The investigation was the last political obstacle between Warsh and the chairmanship.
Senator Thom Tillis (R-NC) on the Banking Committee had imposed an effective hold on the full Senate vote while the criminal probe remained open. Tillis described the investigation as frivolous and had told colleagues he would vote to confirm Warsh the moment it was shut down.
Powell’s current term as chair expires May 15. Without a confirmed successor by that date, he had said he would stay on “pro tem,” an outcome Trump has repeatedly signaled he would not accept.
The president last week threatened to fire Powell outright if he refused to step down, a move that would have opened a protracted legal fight and left the world’s most important central bank in limbo.
How Markets Repriced
Polymarket odds on Warsh being confirmed as Fed Chair by May 15 jumped from 27% Friday morning to 84% by the afternoon, one of the sharpest intraday repricings the contract has seen since it was listed.
The broader rate complex, however, barely moved. The CME FedWatch tool continues to assign roughly a 68% probability that the Federal Open Market Committee will still sit at the current 350–375 basis-point range through the December meeting.
Polymarket’s separate contract on 2026 Fed rate cuts keeps the “zero cuts” scenario as the modal outcome at 40.5%, with one 25-basis-point cut at 28% and two cuts at 17%.
Treasury yields drifted lower. The 2-year Treasury note yield fell five basis points to 3.78% on Friday, while the 10-year bond edged two basis points lower to 4.30%.
Warsh’s Tuesday confirmation hearing laid out what he called a regime change in how the Fed conducts policy.
He dismissed core personal consumption expenditures, the Fed’s preferred inflation gauge for two decades, as a “rough swag as to what was going on” with prices, and said he would replace it with trimmed-mean and median PCE.
He also rejected forward guidance, pushed for faster balance-sheet runoff, and described the U.S. labor market as close to full employment.
None of that is the language of a Fed chair walking in ready to cut.
Photo: Shutterstock
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