The Justice Department announced Friday it would end its probe into Federal Reserve Chair Jerome Powell over the central bank's headquarters renovation project, likely clearing the way for Kevin Warsh, President Donald Trump's pick to replace Powell, to advance toward Senate approval. U.S. Attorney Jeanine Pirro directed her office to close the investigation, stating that instead of her office continuing the probe, the Federal Reserve's inspector general has been tasked with investigating cost overruns in the multibillion-dollar renovation of the central bank's Washington headquarters. Pirro said she would "not hesitate to restart a criminal investigation should the facts warrant doing so." The investigation focused on renewal projects for two Federal Reserve buildings, which the central bank said had not been renovated since their construction in the 1930s, after costs exceeded earlier estimates of $1.9 billion to about $2.5 billion. An earlier audit of the Federal Reserve's renovation project in 2021 found no evidence of wrongdoing by the central bank, and Powell requested the Inspector General of the Federal Reserve to conduct a second review last year amid broader pressure from the Trump administration. However, White House Press Secretary Karoline Leavitt cast doubt on the probe's status hours later, describing it as "not necessarily dropped" but "just being moved over to the inspector general."
Fed funds futures traders are now pricing in 38% odds of an interest rate cut by year-end, up from 23% earlier on Friday, according to Reuters reports. The dollar index fell 0.28% to 98.55, with the euro up 0.27% at $1.1714. The dollar index is heading for a weekly 0.32% gain, with the euro on track for a 0.41% weekly loss. The Japanese yen strengthened 0.19% against the greenback to 159.4 per dollar, while sterling rose 0.42% to $1.3523. As reported by Reuters, traders are looking ahead to a busy week for central banks, with the Federal Reserve, Bank of Japan, European Central Bank, and Bank of England among those set to announce policy decisions. Ray Attrill, head of FX strategy at National Australia Bank, noted that with every central bank meeting, they've all made it very clear that in the fog of uncertainty about how the war will play out as far as both inflation and growth, it's giving them every excuse they need to sit on their hands. "Earlier in the month we had expected that the BOJ would be lifting rates today, but the probability of that in markets is less than 5%," he added. The U.S. dollar index, which measures the greenback's strength against a basket of six currencies, snapped a two-day losing streak with a 0.1% rise on Tuesday to 98.448, while most other currencies remained unchanged as markets looked for any signs of progress to end the Iran war.
Senate Banking Committee Chairman Tim Scott welcomed the Inspector General's review, stating that the American people deserve answers about unacceptable cost overruns at the Federal Reserve. According to CNBC, Scott expects a full accounting of how costs spiraled out of control and is inviting the Inspector General to brief the Committee within the next 90 days on its findings. Sen. Elizabeth Warren of Massachusetts criticized the move, calling it an attempt to clear the path for Senate Republicans to install Trump's nominee as Fed Chair. The Federal Reserve's inspector general confirmed it is actively working to complete an evaluation of the Board's building renovation project and will make results available to the public and Congress when completed. Sen. Thom Tillis from North Carolina, who had blocked Warsh's confirmation due to what he called a "bogus" investigation of Powell, welcomed the news, with numerous other lawmakers saying it did not appear Powell committed any crime. The Senate Banking Committee is also expected to advance Warsh's nomination as Federal Reserve Chair to the full Senate, with a vote now set for 10 a.m. EDT on Wednesday, as reported by The Economic Times.
According to Reuters, traders are transitioning from Iran war concerns to focus on central bank divergence themes, where the Fed's likely to continue easing interest rates while other central banks around the world are actually going to be hiking. The Federal Reserve is expected to remain on hold next week as policymakers contend with the risk of a renewed bout of inflation from the Iran war and as U.S. economic data points to a resilient economy. The European Central Bank is expected to hold its deposit rate on April 30, but just over half of economists polled by Reuters forecast a hike in June, as policymakers look to shield the euro zone economy from a war-induced energy shock. The Bank of England meets on Thursday, with money markets pricing in a rate hike by year-end, though no change is expected at next week's meeting. Since the start of his second term, Trump has attacked Powell publicly and repeatedly for not effecting lower interest rates, with the Fed holding rates steady for most of last year while watching the impact of Trump's tariff regime on prices and the economy. Steve Englander, global head of G10 FX research at Standard Chartered, noted that it's not a meeting where rates policy is on the front burner, but the FOMC assessment of the economy may improve, adding that the inflation picture is improving very slowly at best and could be an emerging issue for Warsh to deal with when he takes office.
Kevin Warsh testified during his nomination hearing this week, where he faced questioning from Democrat Elizabeth Warren about whether Trump lost the 2020 election. As reported by Yahoo Finance, Warsh declined to say whether Trump lost the 2020 election, a litmus test question meant to illuminate his willingness to contradict the president. Warsh signaled that if confirmed, he would push for significant reforms at the Fed, indicating he favors less forward guidance on interest rate decisions and more limited communication in general. He also expressed a desire to reduce the Fed's balance sheet and reframe how it views inflation. RSM chief economist Joe Brusuelas summed up the latest developments: "Jerome Powell stood tall. He stared down the president. The DOJ blinked." If approved, Warsh will likely become the richest Federal Reserve chair ever, as he disclosed investments and holdings worth roughly $131 million to $209 million earlier this month, far exceeding assets reported by Powell, who disclosed wealth up to $75 million last year and was believed to be the richest person in the role since at least 1948. The White House remains confident that the Senate will swiftly confirm Warsh as Fed chair, with the confirmation process now cleared of the major obstacle posed by the criminal investigation.
