Federal Reserve Chair Jerome Powell announced Sunday that the U.S. Justice Department has initiated a criminal investigation, serving the central bank with grand jury subpoenas. The probe pertains to his testimony before the Senate Banking Committee last June concerning renovations at the Federal Reserve's headquarters. Powell characterized the investigation as a "pretext" stemming from disagreements with the administration over interest rate policy, a perspective echoed by a broad array of international central bankers, former U.S. economic officials, and members of Congress who have expressed concerns about the independence of the Federal Reserve.
Criminal Investigation Details
The U.S. Attorney's Office for the District of Columbia has launched a criminal investigation into Federal Reserve Chair Jerome Powell. The Department of Justice (DOJ) served the Federal Reserve with grand jury subpoenas on Friday, November 29, referencing a potential criminal indictment. The inquiry was reportedly approved by U.S. Attorney Jeanine Pirro in November and involves an analysis of Powell's public statements and an examination of spending records.
Powell confirmed the investigation on Sunday, stating that the subpoenas relate to his testimony before the Senate Banking Committee in June regarding a multi-year renovation project for Federal Reserve office buildings. A Justice Department spokesperson declined to comment on the specific investigation but affirmed the attorney general's commitment to prioritizing investigations into the misuse of taxpayer funds. Former President Donald Trump stated he had no knowledge of the investigation.
Federal Reserve Headquarters Renovation
The criminal investigation is publicly linked to a renovation project at the Federal Reserve's Washington, D.C. headquarters. The cost of this project has increased from an initial estimate of $1.9 billion to $2.5 billion. Powell has explained that the cost increase was due to factors such as inflation, collaboration with various agencies, and unexpected developments including the discovery of excess lead and asbestos, rather than new architectural features. The renovations were described as essential upgrades to decades-old buildings, involving improvements to electrical and ventilation systems and asbestos removal.
Allies of former President Trump, including Peter Navarro, Bill Pulte, and Russ Vought, have alleged mismanagement of the project and that Powell made false statements under oath to senators in June regarding these upgrades. The Federal Reserve has publicly provided information on the renovation's cost overruns, including an FAQ on its website and a guided tour for reporters.
Allegations of Political Motivation
Chair Powell has stated his belief that the legal threats are not primarily related to the Federal Reserve renovations but rather to a desire for the Federal Reserve to lower interest rates. He suggested that achieving this objective might be perceived as easier if he were no longer leading the Federal Reserve. Powell characterized the probe as a "pretext" and "unprecedented action" that should be seen within the broader context of the administration's "threats and ongoing pressure." He indicated that the situation raises questions about whether the Fed would continue to set interest rates based on economic conditions and evidence, or if monetary policy would be influenced by political pressure or intimidation. Powell affirmed his commitment to serving the American people without political bias, focusing on price stability and maximum employment, and stated that he would not resign if requested by the President.
Former President Trump and his allies have previously criticized Powell for the Federal Reserve's interest rate policies, particularly since January 2025. Trump has publicly expressed a desire for lower rates and had suggested firing Powell, whose term as chairman concludes in May.
Importance of Federal Reserve Independence
The independence of the Federal Reserve is widely supported by economists, academics, and former Fed officials, who consider it crucial for the stability of the U.S. economy. This independence is designed to allow policymakers to make interest rate decisions based on economic data and realities rather than short-term political aims, helping to prevent scenarios where political objectives could lead to uncontrolled inflation. The Federal Reserve was established by Congress in 1913 to operate independently of the President and Congress, a structure designed to provide legitimacy for guiding markets and managing the U.S. economy.
Reactions and Support
The criminal investigation into Chair Powell has elicited significant reactions both domestically and internationally:
- International Central Bank Leaders: Twelve central bank chiefs globally, including Reserve Bank of Australia Governor Michele Bullock, Christine Lagarde of the European Central Bank, and Andrew Bailey of the Bank of England, issued a joint statement expressing "full solidarity" with the Federal Reserve System and its Chair. They emphasized that "The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve" and commended Powell's "integrity" and "unwavering commitment to the public interest."
- Former U.S. Economic Leaders: Ten prominent U.S. economic policy leaders, including former Federal Reserve Chairs Alan Greenspan, Ben Bernanke, and Janet Yellen, and five former Treasury Secretaries, condemned the Justice Department's actions in a joint statement. They called the probe an "unprecedented attempt to use prosecutorial attacks to undermine that independence," asserting it has "no place in the United States" and likening the situation to monetary policy conduct in "emerging markets with weak institutions."
- Congressional Members:
- Senator Thom Tillis (R-NC) stated he would oppose any replacement nomination for Powell or other Fed Board nominees until the legal matter is resolved, citing concerns about the independence of both the Federal Reserve and the Department of Justice.
- Senator Elizabeth Warren (D-MA) suggested the intent was to remove Powell and install a politically compliant replacement, urging the Senate not to approve any Trump Fed nominee.
- Senator Lisa Murkowski (R-AK) called the investigation an "attempt at coercion" and suggested Congress should investigate the DOJ.
- Senator Bernie Sanders (I-VT) criticized the actions as "Trump's persecution of Jerome Powell and his political opponents."
- Financial Markets and Economists: Financial markets viewed the legal actions as potentially positive for short-term interest rates but also expressed concern regarding the targeting of Powell. News of the probe contributed to a rise in precious metals prices, with gold reaching $4,572.36 per ounce and silver hitting $84.58 per ounce. Economists and investment specialists, including Mohamed El-Erian, Lloyd Blankfein, and Jason Furman, expressed concerns about undermining the Fed's credibility and the blurring of boundaries between fiscal, prosecutorial, and monetary authority.
Related Legal Actions
The investigation into Powell is occurring concurrently with a scheduled U.S. Supreme Court hearing on January 21. This hearing will address President Donald Trump's actions concerning the removal of Federal Reserve Governor Lisa Cook, an appointee of President Joe Biden. Analysts suggest a ruling in favor of the White House could establish a precedent for the potential removal of Fed Chair Powell.
Chair Powell's Background and Term
Jerome Powell, a registered Republican, was initially appointed to the Federal Reserve board by President Barack Obama in 2012, became Chair under President Donald Trump in 2018, and was reappointed by President Joe Biden in 2022. He has been recognized for navigating the U.S. economy through significant challenges, including the COVID-19 pandemic and a period of high inflation, and for achieving a "soft landing." Powell's current term as Federal Reserve Chair is scheduled to conclude in May. Former President Trump is reportedly preparing to announce his nominee to succeed Powell, culminating a months-long selection process for the position.