Powell links criminal probe to pressure for lower rates
Federal Reserve chair Jerome Powell revealed that the US Department of Justice has served the central bank with grand jury subpoenas that could lead to criminal charges. The investigation officially concerns a $2.5 billion renovation of the Fed’s Washington headquarters and his June 2025 testimony to Congress about that project. In a video message and written statement released on Sunday evening, Powell called the probe a “pretext” and tied it directly to the Trump administration’s frustration with interest rate policy. He said the “threat of criminal charges is a 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.”
Powell argued the episode is really about whether US monetary policy will be guided by economic data or by political pressure and intimidation. President Donald Trump has repeatedly attacked Powell in public, demanding faster and deeper rate cuts to support housing, markets and government borrowing costs. The Fed has already lowered its benchmark rate three times since mid‑2025 and currently targets a 3.5–3.75% range, but has signaled no immediate plan for additional cuts.
Justice Department subpoenas escalate clash over Fed independence
The Justice Department issued grand jury subpoenas to the Fed on Friday evening. This triggered a criminal investigation that Powell sees as an « escalating effort » to influence rate decisions. Prosecutors examine whether Powell misled Congress about cost overruns and design elements in the renovation. The renovation affects two historic Federal Reserve buildings in Washington. Renovation estimates rose from about $1.9 billion in 2023 to roughly $2.5 billion in 2025. The Fed attributes this increase to higher labour and materials costs plus unexpected contamination issues. Administration officials have suggested, without presenting public evidence, that Powell’s June testimony downplayed certain features.
Some lawmakers question whether prosecutors could use this as « cause » for Powell’s removal. Under US law, Fed governors can only face removal « for cause ». This generally means serious misconduct or neglect of duty, not policy disagreements. Powell, who usually speaks cautiously, described the investigation as « unprecedented ». He said it follows months of threats and pressure from the White House. The Justice Department declined detailed comment on the investigation. Officials said only that the attorney general intends to prioritise investigations into potential misuse of taxpayer funds. The White House has referred questions back to the DOJ whilst continuing to criticise the pace of rate cuts.
Markets and economists worry about long‑term damage to Fed autonomy
The criminal probe immediately renewed concerns that political actors are undermining Federal Reserve independence. Economists and investors generally view Fed autonomy as essential for sound monetary policy. This independence allows interest rates to serve long-term economic stability rather than short-term electoral goals. Powell warned that targeting central bankers with criminal threats over policy disagreements could deter future Fed chairs. Future chairs might resist political demands less vigorously if they fear prosecution. Powell said the investigation sends a message not just to him but to whoever might succeed him. His term as chair ends in May 2026. Trump has openly claimed he should have influence over rate decisions. The President has floated the idea of firing Powell or other board members who oppose deeper cuts.
The Justice Department action arrives just weeks before the Fed’s next policy meeting on 27 to 28 January. Officials expect to hold rates steady unless inflation or labour data change sharply. US Treasury yields and the dollar slipped after Powell’s statement was released. Gold prices extended gains as investors sought safety amid the uncertainty. The confrontation marks one of the sharpest tests of central bank independence in modern US history. It could reshape how future administrations interact with the Federal Reserve going forward.
