DOJ Ends Federal Reserve Probe, Clearing Path for New Leadership and Rate Cuts

US Treasury yields declined Friday morning following the announcement that the Department of Justice has dropped its probe into the Federal Reserve. The decision, announced by DC US Attorney Jeanine Pirro, concludes an investigation into the costs associated with construction projects at the central bank. The closure of the investigation is seen as a critical development for the administration's plans to reshape the Federal Reserve's leadership. Specifically, it opens a viable path for the appointment of Kevin Warsh as Fed chair, a move that markets anticipate will lead to a more aggressive pursuit of interest-rate reductions. Market reaction was immediate, with two-year Treasury notes—the benchmark for short-term monetary policy expectations—dropping as much as five basis points to reach 3.78%. While some of these gains were pared, the overall trend across various maturities remained positive. Traders are now pricing in a higher probability of a dovish shift in monetary policy. The removal of legal scrutiny over the Fed's internal operations reduces political friction, allowing the executive branch to move forward with leadership changes that could fundamentally alter the US interest rate trajectory.