Federal judge quashes Justice Department subpoenas to the Fed

WASHINGTON (AP) — A federal judge on Friday quashed Justice Department subpoenas issued to the Federal Reserve in January, delivering a severe blow to a criminal investigation that has already drawn criticism on Capitol Hill.

The investigation into testimony last June by Fed Chair Jerome Powell about a $2.5 billion building renovation has also delayed Senate consideration of Kevin Warsh, President Donald Trump’s pick to replace Powell when his term ends May 15.

In his ruling, Judge James Boasberg said the government had “produced essentially zero evidence to suspect Chair Powell of a crime” and described the subpoenas’ justifications as “thin and unsubstantiated.” Boasberg wrote 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.”

The decision blocked U.S. Attorney Jeanine Pirro from obtaining records from the Fed related to the building renovation. Pirro said she would appeal and criticized the ruling at a news conference, calling it the work of an “activist judge” who “neutered the grand jury’s ability to investigate crime“ and left Powell “bathed in immunity.”

The Justice Department’s probe centers on testimony last June by Powell before the Senate Banking Committee, when lawmakers asked about cost overruns for the Fed’s extensive building renovations. The most recent estimates cited by the Fed suggest the current estimated cost is $2.5 billion—about $600 million higher than a 2022 estimate of $1.9 billion.

Powell at the time disputed that the renovation included “rooftop gardens … VIP elevators” and other amenities. Administration officials, according to the report, charged that earlier construction plans included some of those features, raising questions about whether Powell was either lying or had not filed updated building plans.

Pirro told reporters she wanted to investigate “an atrocious cost overrun of $1 billion.” In an unsealed Friday filing, the government said it was investigating “possible fraud and false statements” by the Fed and Powell.

Pirro’s plan to appeal could further delay Warsh’s consideration. Powell can remain as chair past May 15 if no replacement has been approved, and the investigation’s timing has already affected Senate action. Powell revealed the investigation in a video posted Jan. 11, prompting Sen. Thom Tillis, a North Carolina Republican on the banking committee, to block consideration of Warsh until the investigation is dropped.

Tillis said Friday that the ruling confirmed “just how weak and frivolous the criminal investigation of Chairman Powell is.” Tillis vowed to blockade all Federal Reserve nominees until the criminal probe into Powell is dropped, saying in remarks reported in the story that he expects the appeal to “only delay the confirmation of Kevin Warsh as the next Fed Chair.”

The report said Tillis also stated that seven Republican members of the banking committee have said no crime was committed by Powell at the June hearing. On Tuesday, after meeting with Warsh, Tillis said Warsh “possesses impeccable credentials and a clear vision for maintaining the Fed’s independence while achieving its dual mandate,” which he described as seeking low inflation and maximum employment. However, Tillis reiterated he could not support Warsh until the investigation is completed.

With Republicans holding a 13-11 majority on the committee, Tillis can block Warsh’s nomination from being forwarded to the Senate if all Democrats vote against it.

Boasberg said in his ruling that he offered to let the government submit further evidence against Powell directly to him so that it would not have to tip its hand to the Fed or Powell. The government declined to submit evidence under those conditions. The judge wrote that the court was left with “no credible reason to think that the Government is investigating suspicious facts as opposed to targeting a disfavored official.”

In one of the filings unsealed Friday, the government included a reference to a question that has surrounded Powell for months: whether he will step down from the governing board when his term as chair ends. Powell is serving a separate term as a Fed governor until January 2028. The report said the filing recounts a meeting between a lawyer for the Fed and Pirro and states that the Fed’s attorney indicated: “The Chair feels like he would not leave the board when his term as Chair expires, if he was still under investigation.” The filing further said that it would be “a different look” if Powell were not facing criminal investigation and that the chair would be “free to make a decision that would focus on his family.”

The ruling also added to the broader political pressure over Fed independence described in the report. The Supreme Court has blocked Trump’s effort to fire Lisa Cook for now, after a member of Trump’s administration accused her of mortgage fraud, though the report said no charges were filed.