The U.S. Department of Justice terminates investigation into Fed's excessive spending on renovations, clearing the way for Powell's confirmation.

The U.S. Department of Justice has decided to terminate a controversial investigation into cost overruns at the renovation of the Federal Reserve building, a move seen as potentially clearing confirmation obstacles for Kevin Warsh, the next Federal Reserve chairman nominee by President Trump, and easing the leadership transition uncertainty caused by the investigation. U.S. prosecutor Jeanine Pirro stated on social media on Friday that the Federal Reserve Inspector General's office had been asked to review the issues related to the cost overruns in the renovation and is expected to announce the investigation results soon. She mentioned that given the Inspector General had started the investigation, her office had been instructed to close the existing criminal investigation. Pirro also emphasized that if necessary, reopening the criminal investigation in the future is not ruled out. She stated that the Inspector General has the authority to hold the Federal Reserve accountable to U.S. taxpayers, and believes the final report will help thoroughly clarify the questions that prompted the earlier subpoenas issued by the prosecutors. The White House later issued a statement saying that U.S. taxpayers have the right to get answers on the mismanagement of finances at the Federal Reserve, and the Inspector General's office with stronger statutory powers is better suited to investigate the truth of the matter. This decision marks a major turn in the legal dispute surrounding the investigation of cost overruns in the Federal Reserve renovation. Previously, Pirro had pushed for subpoenas to be delivered to the Federal Reserve and initiated a criminal investigation regarding Fed Chairman Powell's testimony before Congress on this issue. Earlier this week, she also stated that she would continue to push the investigation forward, so this sudden turn surprised the market. The investigation had previously disrupted market expectations for the transition of the Federal Reserve leadership. Powell's term as Federal Reserve chairman expires on May 15, and Warsh had just testified at a Senate Banking Committee hearing this week. Although he had widespread support among Republican members, Republican Senator Thom Tillis from North Carolina had previously stated that he would block Warsh's confirmation unless the Department of Justice withdrew the investigation. Market participants believe that the Department of Justice's decision to end the investigation actually removed one of the most important political obstacles in the confirmation process for Warsh. This controversy also involved a dispute over the boundaries of judicial system and prosecutorial powers. In March of this year, Chief Judge James Boasberg of the D.C. District Court dismissed two grand jury subpoenas issued by Pirro's office in January. Pirro had indicated that she would appeal the ruling. Senior officials in the Department of Justice had also supported her in challenging the ruling on principle, believing that it weakened prosecutors' ability to use grand jury tools in the early stages of investigations. Analysts point out that the termination of this investigation not only helps restore order to the Federal Reserve leadership transition but also alleviates concerns in the market about the continuity of monetary policy. At a time when the Federal Reserve policy path is highly sensitive, any uncertainty surrounding the chairman nominee could amplify market volatility.