Will you stay or will you go? With the criminal investigation now over, Fed Chairman Powell faces a big decision

Federal Reserve Chairman Jerome Powell may be in his final weeks at the central bank and now faces a choice, following the Justice Department’s decision on Friday, whether to stay at the institution.

US Attorney Jeanine Pirro announced on social media that she is referring the criminal investigation into the renovation of the Fed headquarters to the central bank’s inspector general, removing the Justice Department from the investigation for the time being.

While an important move on the face of it, it is especially important as Powell has vowed to continue until the criminal investigation is completed.

Now that the decision has been made he faces a choice: Does he follow historical precedent and walk away from the Fed, as other former chairs have done, or continue for the last two years of his governor’s term?

The decision could have important implications for policy making at a very critical time.

“Powell kept his cards close to his chest. Had the investigation never happened we think he would have left the Fed entirely on May 15,” Krishna Guha, head of global policy and strategy at Evercore ISI, wrote. “But, we think the DoJ’s move may have come too late — and the threat to reopen the investigation is not met — for Powell to leave on May 15.”

Instead, Guha thought, Powell may stay for a while even if he does not complete the governor’s term that ends in January 2028.

President Donald Trump has threatened to fire Powell if he does not leave alone after his term as chairman expires.

At the heart of the issue is the perceived threat to the Fed’s immunity from political interference. Trump has spoken like no other of his predecessors when it comes to hacking the central bank, calling for lower interest rates while threatening to fire Powell and actively trying to oust Governor Lisa Cook.

Powell’s successor, Kevin Warsh, has been criticized by some congressional Democrats as a Trump loyalist who could further jeopardize the Fed’s independence. Warsh had a confirmation hearing this week, but Sen. Thom Tillis, RN.C., vowed to withhold the committee’s vote until the criminal investigation is completed.

“Our desire is that Powell will remain as the Fed’s regular governor for some months to avoid any idea of ​​a de facto agreement or to come out under pressure,” Guha said. “Warsh’s provocative talk of ‘regime change’ at the Fed may also increase the chances that Powell will stay on for a while to try to protect the institution and its staff.”

A Fed spokesman declined to comment on Powell’s plans.

If Powell leaves now, he will give Trump an opportunity to appoint another member to the Board of Governors. Counting Warsh, the president will have three nominees on the seven-member board, including governors Christopher Waller and Michelle Bowman from his first term.

Although the Federal Open Market Committee requires a majority vote to change interest rates, the majority of the board carries some limited influence on policy and staff.

At the same time, if investors view the committee as politically vulnerable, they may view the rate cut negatively.

However, David Zervos, chief market strategist at Jefferies, said on Friday that he thinks Wall Street will take a positive view of Powell’s departure now. Zervos himself was interviewed for the position of Fed chairman but did not make it to the final group.

“Jay’s statement that he’s going to leave at the end of his term as chairman, is actually going to make the market go up, the price market is going to be very positive, which means lower yields, higher prices,” Zervos said during the CNBC interview. “That will have a greater impact than the dismissal of this case.”

Powell will get a chance to address the issue on Wednesday when he holds his regular news conference after the FOMC meeting.

Although Powell has so far not spoken about his intentions, the markets will be watching the issue closely, while monitoring the Senate’s steps in confirming Warsh. The incoming chairman indicated a preference for lower rates and a rethinking of some of the Fed’s activities.

“There will be a lot of energy that goes along with Kevin’s work,” Zervos said. “He can change the way a lot of things work on the table.”