Fed subpoenas blocked by judge; DOJ to appeal

In a scathing ruling, a federal judge blocked grand jury subpoenas issued to the Federal Reserve as part of a criminal investigation against Chairman Jerome Powell.

U.S. Attorney for the District of Columbia Jeanine Pirro immediately said the Justice Department would appeal what she called an “outrageous” decision after it was made public Friday.

Friday’s action will likely keep Powell as chairman for longer, as Sen. Thom Tillis, R-N.C., has vowed to block the confirmation of Kevin Warsh to succeed Powell until the federal investigation is complete.

That could mean interest rates will stick around longer than President Donald Trump wants, as Powell has refused to comply with the president’s demands to lower them further.

U.S. District Judge James Boasberg, in his ruling, said the evidence showed Pirro was motivated to investigate Powell because of a desire to get the Fed chief to pander to Trump and cut interest rates quickly and broadly.

Pirro’s investigation will reportedly focus on the multibillion-dollar renovation of the Fed’s headquarters in Washington and Powell’s testimony before the Senate Banking Committee about that project.

“Did the prosecutors issue these subpoenas for a legitimate purpose? The Court concludes that they did not,” Boasberg wrote in the decision from the U.S. District Court in Washington, dated Wednesday, but unsealed Friday.

“There is ample evidence that the primary (if not sole) purpose of the subpoenas is to harass and pressure Powell into yielding to the Chairman or resigning and making way for a Fed Chairman who will do so,” the judge wrote.

“On the other side of the scale, the government has presented no evidence that Powell committed any crime other than displeasing the President,” Boasberg wrote.

Pirro blasted Boasberg’s decision during a news conference Friday, calling it “outrageous.”

“Jerome Powell is now bathed in immunity,” she fumed. “This is false, and this without legal authorization.”

Tillis, in an article on X on Friday, predicted that the decision would stand.

“This decision confirms how weak and frivolous the criminal investigation against Chairman Powell is and is nothing more than a failed attack on the independence of the Fed,” he said. “We all know how this is going to end and the DCUS Attorney’s Office should save itself any further embarrassment.”

The Federal Reserve declined to comment when contacted by CNBC.

Boasberg’s decision and the DOJ’s planned appeal will likely keep Powell in his seat as Fed chair until his term expires in May.

Tillis’ promised “no” vote in the Banking Committee, advancing Warsh’s nomination, would stall that committee, preventing Warsh from getting a confirmation vote by the full Senate.

Trump’s desire for the Fed to further cut interest rates was further complicated by the war in Iran.

Soaring energy costs will likely deter policymakers from relaxing policies until it becomes clearer when and how the war will end.

Recent statements from Fed officials have indicated a rather cautious approach toward further cuts, with the exception of Governors Stephen Miran and Christopher Waller, who have come out in favor of lowering rates.

The markets had already postponed any hope of a rate cut until the end of the year. Before the war, the market had predicted at least two reductions.

—CNBC Eamon Javers And Jeff Cox contributed to this article