Kevin Warsh’s journey to be the next chair of the Federal Reserve — shadowed by President Donald Trump’s fervent wish for lower interest rates — now faces new legal and political roadblocks.
The result: Fed Chair Jerome Powell holding on to that job longer than most, and especially the White House, expected.
Warsh’s nomination was expected to be approved by the Senate Banking Committee and confirmed by the full Senate in time this spring for the 55-year-old lawyer to assume the chair role by the Fed’s June policymaking meeting.
Now, not so much.
A federal judge on March 13 quashed a pair of subpoenas the Justice Department issued to the Federal Reserve earlier this year.
The ruling was seen as a victory for the central bank’s independence and a huge blow to U.S. Attorney Jeanine Pirro’s attempted criminal investigation into Powell.
Pirro filed an appeal hours after the ruling was unsealed.
And a retiring Republican member of the Senate Banking Committee immediately repeated his stance that he would continue to block Warsh’s nomination from going to the full Senate until the DOJ dropped all criminal proceedings against Powell.
As the case winds its way through the federal courts, there’s a good chance that Powell could remain as chair of the Federal Reserve Board until a replacement wins Senate approval.
In a quirky twist, Powell’s position as chair of the Federal Reserve Board ends May 15 but his role as chair of the policy-making Federal Open Market Committee is valid until the end of this year. His term as a board governor doesn’t expire until 2028, and Powell has not said if he would step down prior to then.
So Warsh’s nomination process is, for now, stalled just as stagflation fears and hopes for lower interest rates collide against slowing growth, a weakening job market and short- and medium inflation concerns from the Iran War’s oil shock to global markets.
Judge cites Trump’s own words disparaging Powell
U.S. District Judge James Boasberg ruled the subpoenas were improper in a blistering 27-page opinion that included multiple references to Trump’s social media posts and oral remarks attacking Powell for not lowering interest rates drastically.
“There is abundant evidence that the subpoenas’ dominant (if not sole) purpose is to harass and pressure Powell either to yield to the President or to resign and make way for a Fed Chair who will,” Boasberg, an Obama appointee, wrote.
The judge said the government had produced “essentially zero evidence” that Powell had committed a crime.
Pirro appeals Fed subpoena ruling
Pirro opened the probe to examine whether Powell gave false testimony to Congress last summer about cost overruns at the $2.5 billion building-renovation project at the Fed’s headquarters.
The unprecedented move prompted an equally historic public response from Powell.
He issued a video statement on Jan. 11 in which he said the investigation was a pretext for President Trump’s campaign to pressure the Fed to lower interest rates and end the independence of the central bank.
More Federal Reserve:
Pirro, a longtime ally of the president, said her office would also file a motion to reconsider, adding the decision “neutered” the grand jury’s ability to investigate criminal activity.
“As a result, Jerome Powell is bathed in immunity,’’ Pirro, a longtime ally of the president, said in a fiery March 13 press conference in which she called Boasberg “an activist judge.”
Markets, economists react to Fed ruling
The ruling strengthens the legal defense of Fed independence and weakens attempts by the president and his allies to increase executive power over the independent agency.
- Markets viewed it as removing a political/legal risk hanging over the central bank under the Trump administration.
- But analysts warned that the broader political battle over the Fed and Warsh’s confirmation are far from over.
Joseph Brusuelas, chief economist at RSM US, said Boasberg’s ruling could further delay Warsh’s nomination.
Related: Goldman Sachs bucks Warsh Fed rate cut worry
Former Dallas Fed President Richard Fishertold CNBC that Powell’s term as head of the policymaking-making FOMC could last for the rest of the year.
Fisher noted that Powell has broad bipartisan support on “both sides of the Hill.”
He described Powell “as a man of great integrity.”
As for Pirro’s appeal to resume the criminal investigation, “I think she’s going to lose.”
Judge: “zero evidence” that Powell committed a crime
Excerpts from Boasberg’s ruling include:
- A mountain of evidence suggests that the dominant purpose is to harass Powell to pressure him to lower rates. For years, the president has publicly targeted Powell because the Fed is not delivering the low rates that Trump demands.
- When the evidence of improper motive is so strong and the justifications for these subpoenas are so tenuous, it is hard to see the renovations and testimony as anything other than convenient pretext for launching a criminal investigation that the government launched for another, unstated purpose: pressuring Powell to knuckle under.
- A mountain of evidence suggests that the government served these subpoenas on the Board to pressure its Chair into voting for lower interest rates or resigning.
- On the other side of the scale, the government has produced essentially zero evidence to suspect Chair Powell of a crime; indeed, its justifications are so thin and unsubstantiated that the Court can only conclude that they are pretextual.
Related: Federal Reserve official blasts latest interest-rate pause
