DOJ ends its criminal case against Jerome Powell. What it means amid the president's ongoing push to oust the Federal Reserve chair.

The Justice Department announced Friday that it is dropping its criminal investigation into Federal Reserve Chair Jerome Powell. The decision clears a major roadblock that has prevented the president from replacing the head of the government’s most important financial institution.

Powell had been under investigation since January as part of an inquiry into his handling of renovations at the Federal Reserve’s headquarters. His term as Fed chair is scheduled to end on May 15, but he has said he’ll remain in the position if the Senate doesn’t confirm his replacement by then.

Trump has been relentlessly critical of Powell since returning to the White House, referring to him as a “stubborn moron,” a “real dummy,” a “fool,” and a “disaster” while calling for him to resign. But the confirmation of his choice to become the next chair, Kevin Warsh, has been stalled amid outcry over the DOJ’s investigation into Powell. Now that the investigation has been dropped, Warsh’s confirmation can presumably move forward.

The choice to end the investigation marks a reversal from just last week, when Trump insisted that his administration would continue the probe and threatened to fire Powell if he refused to step down at the end of his term.

“I’ll have to fire him … if he’s not leaving on time,” he said during an interview with Fox Business. “I’ve held back firing him. I’ve wanted to fire him. But I hate to be controversial, you know, I want to be uncontroversial.”

The president’s ongoing clash with the Federal Reserve involves a complex web of criticism, accusations and high-stakes policy decisions. Here’s a breakdown of what’s happening, what to expect and how the outcome might affect the entire U.S. economy.

Who is Jerome Powell?

Powell is the chair of the Federal Reserve. He was first appointed by Trump in 2018 and reappointed by former President Joe Biden in 2022. His term as chair is scheduled to end in May, but he will remain a member of the Fed’s board of governors until 2028 unless he is fired or steps down.

What is the Federal Reserve?

The Federal Reserve, often referred to simply as the Fed, is what’s known as the central bank of the United States. Its main purpose is to keep the U.S. financial system stable. It was created in the early 1900s in the wake of a series of financial panics that convinced lawmakers that a central banking authority was needed to keep the financial industry from repeatedly tanking the economy. Its decisions have a significant impact not only in the United States but on the global economy.

What does the Fed do?

The Federal Reserve has broad power to act in the interest of maintaining stability within the economy. It oversees monetary policy, regulates banks and monitors the economy for systemic risk. The most potent — and most heavily scrutinized — tool it uses is interest rates.

The Fed is perpetually working to use interest rates as a way to create balance in the economy. If rates are too low, more money can flow throughout the economy, which can cause inflation to rise. If they’re too high, that can slow down the economy, limiting growth and causing unemployment to increase.

Typically, the Fed’s interest rate changes are subtle, often a quarter of a percent up or down at a time. In extreme circumstances, though, it can make dramatic shifts to rates in order to wrench the economy away from disaster.  

Does the president control the Fed?

No. One of the most important things about the Federal Reserve is its independence. It is not controlled by the president or Congress. It makes its decisions entirely on its own. The Fed was specifically designed to be shielded from political pressure because lawmakers understood at the time of its creation that the country’s economic interests wouldn’t always align with the political interests of whoever is president at the time.

The president does have some influence over the Fed, however. He gets to appoint the Fed chair and members of the central bank’s Board of Governors, who each require Senate confirmation. He also has the power to fire board members or the chair, but only “for cause,” like serious misconduct or inability to do the job, not over policy disagreements.

Why is Trump mad at Powell and the Fed?

Trump wants the Fed to lower rates further and more quickly than it has been willing to do. The Fed increased interest rates during the second half of Biden’s term to get post-pandemic inflation under control. It worked, but the Fed has been hesitant to cut rates too aggressively, out of concern that progress on inflation could be lost if it moves too quickly.

Trump has repeatedly criticized Powell for, in his view, waiting too long to cut interest rates, which he argues is stifling growth in the economy.

Why won’t the Fed cut rates as much as Trump wants?

Trump’s own policies are a big part of the explanation. Powell has cited “inflationary pressures” (economist-speak for things that might drive prices higher) as a reason for explaining the Fed’s cautious approach to interest rates. One of those inflationary pressures is Trump’s tariffs, which have increased companies’ operating costs, resulting in higher prices for consumers. Another is the war in Iran, which even Trump’s Treasury secretary believes might be reason for the Fed to hold off on further rate cuts.

Was Powell being investigated for defying Trump?

Officially, no. The investigation itself was focused on Powell’s role in renovations for the Fed building in Washington, D.C. But critics of the probe believe he was being targeted for his refusal to abide by Trump’s wishes.

Powell has referred to issues with the renovations as “pretexts” for the president to come after him over his policy decisions.

“The threat of criminal charges is the consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” he said.

That view is shared by many lawmakers in Congress, including some Republicans. GOP Sen. Thom Tillis accused the administration of “actively pushing to end the independence of the Federal Reserve.” Rep. French Hill, a Republican who heads the House Financial Services Committee, warned that the case could “undermine this and future Administrations’ ability to make sound monetary policy decisions.”

Can Trump fire Powell?

Trump could have used the investigation as “cause” for firing Powell, but it’s unclear whether that would actually have lead to Powell’s removal.

In August, Trump attempted to fire Lisa Cook, a member of the Federal Reserve Board of Governors, after accusing her of mortgage fraud. Cook refused to accept the firing and filed a suit challenging the decision. That case was heard by the Supreme Court in January. No final decision has been released, but most legal experts said the justices are likely to block Cook’s firing.

Why hasn’t Powell’s replacement been confirmed?

Tillis vowed to block any attempt to confirm a new Fed chair until the investigation into Powell was resolved. Tillis hasn’t publicly responded to news of the inquiry being dropped, but called Warsh a “great nominee” who he looks forward to supporting once the “bogus investigation” concludes.