The ‘Lasting Damage’ of Pirro’s Abandoned Fed Investigation

The Justice Department’s criminal investigation of the Federal Reserve and its chair, Jerome H. Powell, appears to be over. But the ramifications for the central bank are likely to prove much longer lasting.

Nine months after President Trump made a hasty visit to the Fed’s Washington headquarters and promised to “take a look” at a costly renovation, the administration has concluded its inquiry with seemingly nothing to show. Far from the criminal charges that they once pursued, prosecutors left in their wake a dark cloud over the institution and the person Mr. Trump has chosen to next lead the central bank.

The about-face has removed, for now, the immediate threat of a further escalation against the Fed. It has also potentially cleared a path for Mr. Trump’s nominee for Fed chair, Kevin M. Warsh, to succeed Mr. Powell, whose term ends on May 15.

What will be far harder to recoup is confidence in the Fed’s ability to operate independently from a White House that has shown little restraint in its efforts to bully the central bank into slashing interest rates.

Even as Jeanine Pirro, the U.S. attorney for the District of Columbia, announced that the investigation was shutting down, she warned that she would “not hesitate” to reopen the inquiry if warranted. Ms. Pirro added that she had asked the Fed’s inspector general to take over the investigation, even though the internal watchdog had been looking into the matter since July.

Karoline Leavitt, the White House press secretary, said on Friday that the investigation “still continues” and was simply being taken up “under a different authority.”

Kathryn Judge, a Columbia Law School professor who was a Supreme Court law clerk for Justice Stephen G. Breyer, said she feared “lasting damage” from the investigation into Mr. Powell — not only for the Fed but for policymakers across government.

Until now, she said, officials did not have to worry about repercussions from “taking a strong stance on policy issues in ways that are inconsistent with the president’s agenda.” But that was the sort of pressure that Mr. Powell faced as Mr. Trump sought to force rates down.

Although the Fed cut rates last year, it did not deliver the kind of relief that Mr. Trump wanted. Since January, it has also turned cautious on subsequent reductions, a sentiment that has only grown amid the war in Iran, which has caused an acute energy shock.