Federal prosecutors have commenced a criminal inquiry concerning Federal Reserve Chair Jerome Powell regarding his June testimony before Congress about the central bank’s $2.5 billion Washington, D.C. headquarters refurbishment.
The stunning maneuver against the independent Federal Reserve drew an equally unusual statement from Powell, released via video Sunday evening, where he contended the probe is a direct outcome of his ongoing dispute with the administration over interest rates. Powell asserted it resulted from broader “threats and continued pressure” from the administration.
“The threat of criminal charges is linked to the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the President’s preferences,” Powell remarked in his late Sunday declaration.
This investigation sends a worrying signal to Powell—and to whoever may lead the Fed next. President Donald Trump’s relentless attacks on the Fed Chair, whom the President stated he would not renominate, have struck at the Fed’s customary political impartiality. Trump even suggested he ought to have a say in rate decisions.
But a criminal probe escalates Trump’s conflict with the Fed to an entirely new plane. It indicates that whoever Trump selects to succeed Powell after his term concludes in May will continue to face administration pressure to lower borrowing costs.
Investors and economists globally value the Fed’s independence. It ensures policymakers contemplate the long-term ramifications of monetary policy setting—rather than fleeting political whims—when guiding the economy.
“It concerns whether the Fed can continue setting interest rates based on evidence and economic conditions—or whether monetary policy will be dictated by political coercion or intimidation.”
Justice Department spokesperson Matt Miller declined comment on the inquiry, but a statement to CNN indicated the Attorney General seeks to “prioritize the investigation of any misuse of taxpayer funds.”
The White House pointed CNN toward the Justice Department’s statement. In an NBC News interview on Sunday, Trump denied awareness of the investigation, claiming, “I know nothing about it, but he’s certainly not very good at the Fed and not very good at building buildings.”
The Year-Long Pressure Campaign
Trump and his allies have repeatedly criticized Powell for not cutting interest rates at the President’s behest. The Fed delivered three consecutive rate reductions in the latter half of last year, though officials recently indicated further cuts are unlikely anytime soon.
Trump’s pressure campaign included a barrage of personal insults directed at Powell, escalating to threats to dismiss the Fed chair. However, Powell maintains Trump lacks the authority to fire him.
Later that year, Trump targeted Fed Governor Lisa Cook, appointed by then-President Joe Biden. The President and his allies accused Cook of mortgage fraud. Trump referenced these allegations when dismissing her in August, though Cook faced no criminal indictment. The Supreme Court will hear oral arguments later this month on whether Trump can indeed dismiss Cook.
The Fed’s renovation also fueled ongoing controversy. Powell testified before Congress in June, asserting the repairs resulted from collaboration with various agencies and that costs fluctuated over time.
Trump threatened legal action against Powell over the upgrades. Last month, the President suggested he was considering “a lawsuit against Powell for incompetence.”
Trump allies, such as Federal Housing Finance Agency Director Bill Pulte and Office of Management and Budget Director Russ Vought, contend the project was poorly executed. Nevertheless, the Fed maintains that modernizing its aged facilities was essential, including asbestos elimination and updating electrical and HVAC systems.
The hostility became public in July when Trump joined Powell for a tour of the project. Powell corrected Trump in front of reporters regarding the project’s expense, with palpable tension between the two men.
Replacing Powell
The federal inquiry surfaces as Trump prepares to announce his nominee to replace Powell following his term’s end in May. This selection will finalize a months-long search for arguably the most significant post in the global economy.
Trump has hinted that National Economic Council Director Kevin Hassett could be the next Fed Chair, though he recently also interviewed former Fed leader Kevin Warsh and is expected to interview BlackRock Global Fixed Income Chief Investment Officer Rick Rieder.
Trump stated he would announce his choice “early” this year.
After the federal investigation became public late Sunday, North Carolina Republican Senator Thom Tillis posted on X that he “will oppose the confirmation of any Fed nominee—including the upcoming Fed Chair vacancy—until this legal matter is fully resolved.” Tillis is not running for reelection.
Massachusetts Democratic Senator Elizabeth Warren echoed this in a Sunday statement: “The Senate should not advance any Trump nominee to the Fed, including the Fed Chair.”
Investors and analysts also expressed concern about the probe and what it might portend for the world’s largest economy.
“We are staggered by this deeply troubling turn of events, coming out of the blue following a period where tensions between Trump and the Fed seemed contained,” wrote Krishna Guha, Vice Chairman at Evercore ISI, in a note.
“As of this writing, we are still seeking more intelligence and context, but at first blush, it appears the administration and central bank are now engaged in open warfare…”
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