Federal Reserve Chair Jerome Powell said on Sunday that the Department of Justice had served the central bank with subpoenas and threatened it with a criminal indictment over his testimony this summer about the Fed’s building renovations.
The move represents an unprecedented escalation in President Donald Trump’s battle with the Fed, an independent agency he has repeatedly attacked for not cutting its key interest rate as sharply as he prefers.
The renewed fight will likely rattle financial markets on Monday and could over time escalate borrowing costs for mortgages and other loans.
Market reaction was initially modest, with S&P 500 futures down less than 1% after pre-market trading opened.
The subpoenas relate to Powell’s testimony before the Senate Banking Committee in June, the Fed chair said. The testimony concerned the Fed’s $2.5bn (€2.14bn) renovation of two office buildings, a project that Trump has criticised as excessive.
Powell on Sunday cast off what has up to this point been a restrained approach to Trump’s criticisms and personal insults, which he has mostly ignored. Instead, Powell issued a video statement in which he bluntly characterised the threat of criminal charges as simple “pretexts” to undermine the Fed’s independence when it comes to setting interest rates.
“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 said.
“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation.”
It’s a sharp departure from the Fed’s understated response to Trump this year. The central bank has attempted to placate the administration by dialling back some policies, such as efforts to consider the impact of climate change on the banking system, that the administration clearly opposed.
Confidence in US investments
The renewed attacks on the Fed’s independence, and Powell’s full-throated defence, reignite what had appeared to be a dormant battle between Trump and the chair he appointed in 2017.
The subpoenas will renew fears that the Fed’s independence from day-to-day politics will be compromised, which could undermine global investors’ confidence in US Treasury securities.
“We expect the dollar, bonds and stocks to all fall in Monday trading in a sell-America trade similar to that in April last year at the peak of the tariff shock and earlier threat to Powell’s position as Fed chair,” Krishna Guha, an analyst at Evercore ISI, an investment bank, wrote in a note to clients.
“We are stunned by this deeply disturbing development which came out of the blue after a period in which tensions between Trump and the Fed seemed to be contained,” Guha added.
In a brief interview with NBC News Sunday, Trump insisted he didn’t know about the investigation into Powell. When asked if the investigation is intended to pressure Powell on rates, Trump said: “No. I wouldn’t even think of doing it that way.”
Powell’s term as chair ends in May, and Trump administration officials have signalled that he could name a potential replacement this month.
Trump has also sought to fire Fed governor Lisa Cook, an unprecedented step, though she has sued to keep her job and courts have ruled she can remain in her seat while the case plays out. The Supreme Court will hear arguments in that case on 21 January.
Clashes over Fed renovations
At the Senate Banking Committee hearing in June, Chairman Tim Scott, a Republican from South Carolina, said the Fed’s building renovation included “rooftop terraces, custom elevators that open into VIP dining rooms, white marble finishes, and even a private art collection”.
Powell disputed those details in his testimony, saying “there’s no new marble. … there are no special elevators” and added that some of the controversial items are “not in the current plan.”
In July, Russell Vought, director of the Office of Management and Budget, said in a letter to Powell that his testimony about changes to the building plans “raises serious questions about the project’s compliance” with previous plans approved by a planning commission.
Still, later that month, Trump visited the building site and, while standing next to Powell, overstated the cost of the renovation. Later that day, Trump, speaking to reporters, downplayed any concerns with the renovation. He said, “they have to get it done” and added: “Look, there’s always Monday morning quarterbacks. I don’t want to be that. I want to help them get it finished.”
When asked if it was a firing offence, Trump said: “I don’t want to put that in this category.”
Prosecutions of political opponents
The Justice Department in a statement on Sunday said it can’t comment on any particular case, but added that Attorney General Pam Bondi “has instructed her US Attorneys to prioritise investigating any abuse of tax payer dollars”.
Timothy Lauer, a spokesperson for US Attorney Jeanine Pirro’s office, said they don’t comment on ongoing investigations.
With the subpoenas, Powell becomes the latest perceived adversary of the president to face a criminal investigation by the Trump administration’s Justice Department. Trump himself has urged prosecutions of his political opponents, obliterating institutional guardrails for a Justice Department that for generations has taken care to make investigative and prosecutorial decisions independent of the White House.
The potential indictment has already drawn concern from one Republican senator, who said he’ll oppose any future nominee to the central bank, including any replacement for Powell, until “this legal matter is fully resolved”.
“If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none,” said North Carolina senator Thom Tillis, who sits on the Banking Committee, which oversees Fed nominations.
“It is now the independence and credibility of the Department of Justice that are in question.”
