Rate cut expectations heat up! The U.S. Department of Justice terminates investigation into Powell, paving the way for Wash to take over.

The latest statement from the US Department of Justice indicates that they will end the criminal investigation into Federal Reserve Chairman Powell, thereby removing a key obstacle that previously hindered the confirmation of Kevin Warsh as his successor. In response to this news, expectations for a rate cut by the Federal Reserve later this year have increased, leading to volatility and gains in the three major US stock indices. US Attorney Jenny Piero announced on Friday that her office will terminate the investigation into Powell's testimony on the issue of cost overruns in the renovation of the Federal Reserve building. Previously, a federal judge had ruled that the subpoena issued to the Federal Reserve in January was improper and concluded that "there is almost no evidence of any criminal wrongdoing." Piero stated on the social platform X that she decided to withdraw the investigation after requesting the Inspector General of the Federal Reserve to review the matter. She wrote, "I expect to receive a comprehensive report in the short term and believe that its findings will help resolve the relevant questions that prompted this office to issue the subpoena previously." She also added, "But please note, if the facts show it is necessary, I will not hesitate to restart the criminal investigation." White House spokesperson Kush Desai subsequently stated, "American taxpayers deserve answers about mismanagement of the Federal Reserve's finances, and the Inspector General's office has the strongest authority to determine the truth. The White House continues to believe that the Senate will quickly confirm Kevin Warsh as the next Federal Reserve Chairman, ultimately restoring the Fed's decision-making ability and credibility." Just before Warsh attended the confirmation hearing on Tuesday, Trump ignored suggestions to have Congress oversee the Federal Reserve's overspending issues and end the investigation. He said, "We must find out where this money went." In fact, Powell had requested the Federal Reserve Inspector General to review the building project as early as July last year, and the work is still ongoing. The Inspector General had released an early audit report on the renovation project in 2021. Clearing the way for Warsh's appointment For Warsh, this decision means that his biggest political obstacle to confirmation has been removed. Republican Senator Thom Tillis from North Carolina had previously stated that he would not push forward any Federal Reserve nominee's consideration until the investigation was concluded. With Republicans holding a majority of 13-11 in the Senate Banking Committee, and all Democratic members previously refusing to consider the nomination, Tillis' support was crucial. At this week's hearing, Tillis did not question Warsh but used his questioning time to go through a slideshow about the renovation costs. He told Warsh, "You have an excellent record, impeccable. Let's put an end to this investigation so I can support your confirmation." After the hearing, pressure from within the Republican party to have Trump and Piero drop the investigation continued to rise, with several high-ranking Republicans, including Senate Majority Leader John Thune, openly supporting Tillis' call to push forward Warsh's nomination process. Powell's term as chairman will end on May 15. He has stated that if his successor is not in place by then, he will continue to lead the Federal Reserve as "Acting Chairman." The next Federal Reserve interest rate decision meeting is scheduled for June 16-17. Powell still needs to make a decision on another issue, whether to resign from his position as a Federal Reserve Governor. He can keep his position until January 2028, and he had previously stated that he would continue to serve at least until the investigation was "truly concluded and had transparency and final conclusions." Whether he continues to serve after that will depend on what he believes is the best choice for the institution and the public. Warsh has been nominated to succeed Federal Reserve Governor Stephen Milam, whose term expired at the end of January, but can continue to serve until Warsh is confirmed. If Powell leaves the board, Trump can appoint Milam or a new candidate to fill the vacancy. The conclusion of this investigation, at least at this stage, marks a turning point in a conflict over the independence of the Federal Reserve. In a video statement in January when the investigation was revealed, Powell took the unusual step of publicly criticizing the executive branch for pressuring the central bank on interest rate policy under the guise of an investigation. Meanwhile, the Trump administration had also attempted to dismiss another Senate-confirmed Federal Reserve Governor, Cook. The Supreme Court of the United States has allowed Cook to continue serving during the challenge to his dismissal decision, with a ruling expected by the end of June.