Doj Opens Probe Into Fed's Powell, Drawing Backlash From Lawmakers

The Justice Department has opened a criminal investigation into Federal Reserve Chair Jerome Powell's statements to Congress regarding renovations of the Fed’s headquarters in Washington, according to Powell, marking a sharp escalation of President Donald Trump’s crusade against the Fed chief.

Trump has long pushed Powell to cut interest rates, and the central bank leader framed the latest action in starkly political terms, arguing that the administration was solely motivated by the president’s desire for dramatically lower borrowing costs.

“I have deep respect for the rule of law and for accountability in our democracy. No one—certainly not the chair of the Federal Reserve—is above the law. But this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure,” Powell, who has previously avoided confrontation with the president despite a constant barrage of criticism, said in a statement Sunday night.

“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings,” he added in a video message. “It is not about Congress's oversight role; the Fed, through testimony and other public disclosures, made every effort to keep Congress informed about the renovation project. Those are pretexts. 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.”

A Justice Department spokesperson declined to comment on Powell's statement or to discuss any specific investigation, but added: "The Attorney General has instructed her U.S. Attorneys to prioritize investigating any abuse of taxpayer dollars."

In an interview with NBC, Trump said he didn't know anything about the DOJ investigation. “No. I wouldn’t even think of doing it that way," he said. "What should pressure him is the fact that rates are far too high. That’s the only pressure he’s got."

The DOJ sent grand jury subpoenas to the Fed on Friday regarding his statements to Congress on the central bank’s headquarters, Powell said. That action comes ahead of the central bank’s rate-setting meeting later this month, when the Fed is widely expected to pause its recent series of rate cuts. And the potential criminal charges facing the Fed chair are emerging as Trump faces low poll numbers over his handling of the economy.

Powell was asked about the Fed's headquarters renovations at a hearing last June by Senate Banking Chair Tim Scott after a New York Post article characterized it as akin to the “Palace of Versailles."

“There’s no VIP dining room,” Powell told senators. “There’s no new marble. There are no special elevators. There are no new water features. There’s no beehives, and there’s no roof terrace gardens.” Federal Housing Finance Agency Director Bill Pulte, who has echoed the president's complaints about high borrowing costs, in July urged lawmakers to probe that testimony. Afterward, Trump visited the construction site to hear about the project.

Sen. Thom Tillis (R-N.C), a member of the Senate Banking Committee, quickly opposed the DOJ move.

“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,” Tillis said. “It is now the independence and credibility of the Department of Justice that are in question.”

Tillis went further, saying he will “oppose the confirmation of any nominee for the Fed—including the upcoming Fed Chair vacancy—until this legal matter is fully resolved.”

Even a large swath of Republicans in the MAGA-friendly House were stunned.

“Will they stop at nothing to force their way on everything?” one senior House Republican said. “The administration is setting a standard they cannot achieve themselves and will haunt us all for a generation.”

But others, including GOP hardliners and Republicans who want Powell gone, cheered the news. One called it a “fascinating” move.

Powell is due to step down from the Fed chair post in May, though he may continue to serve on the central bank board.

The president has already attempted to fire one governor on the Fed’s board, whose members are only removable by the president “for cause,” a term that has not been litigated but is generally understood to mean some kind of wrongdoing, not a policy difference. Trump accused Gov. Lisa Cook of mortgage fraud — allegations her lawyer has contested — and the Supreme Court will hear oral arguments in that case on Jan. 21.

“It's part of a campaign. Lisa Cook, Jay Powell. He'll do anything to get control over the Federal Reserve,” said Donald Kohn, a former vice chair of the central bank who’s now a senior fellow at the Brookings Institution. “History tells us that when the independence of the central bank is compromised, bad things happen. It’s very worrisome.”

Action against Powell could backfire on the president. Though the Fed controls short-term interest rates, the rates that determine borrowing costs for the U.S. government, for homebuyers and for Americans buying cars are driven by inflation and growth expectations over a longer time horizon.

Fears by investors and businesses that the Fed will make decisions based on the president’s whims, rather than the long-term interest of the economy, could undermine the central bank’s credibility as an inflation fighter and drive up longer rates.

“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,” Powell said in his statement.

Powell, a Republican, was first nominated to the central bank under President Barack Obama and elevated to chair by Trump in his first term before being renominated by President Joe Biden.

“I have served at the Federal Reserve under four administrations, Republicans and Democrats alike,” the Fed chief said. “In every case, I have carried out my duties without political fear or favor, focused solely on our mandate of price stability and maximum employment. Public service sometimes requires standing firm in the face of threats. I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people.”

Mohamed El-Erian, a professor at the Wharton School and chief economic adviser at Allianz, cautioned that Powell’s reaction to the subpoena will “get a lot more attention in the marketplace than the subpoena itself.”

The dollar sank and gold rose as overnight markets digested the news of the Fed subpoenas, a sign of investor concern about central bank independence.

Josh Gerstein contributed to this report.