The chairman of the United States Federal Reserve, Jerome Powell, has publicly disclosed that his institution is facing a criminal inquiry initiated by federal prosecutors, describing the move as retaliation for the central bank’s refusal to align its monetary policy decisions with the preferences of President Donald Trump.
Powell made the revelation in a video statement released on Sunday, confirming that the Federal Reserve received grand jury subpoenas on Friday connected to his testimony before the Senate in June regarding a major renovation project at the central bank’s headquarters in Washington.
“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 in the statement.
He characterised the Justice Department’s action as “unprecedented” and part of what he described as the “administration’s threats and ongoing pressure” on the institution, which has traditionally operated independently of political influence.
Powell dismissed the subpoenas as “pretexts” following months of escalating tension with Trump, who has repeatedly criticised the Fed for not cutting interest rates more aggressively to stimulate economic growth.
The Federal Reserve, established in 1913, is tasked with a dual mandate to maintain stable prices and promote maximum employment. It fulfils this role primarily by setting a benchmark interest rate that influences borrowing costs throughout the economy. The institution’s independence from political interference has long been regarded as essential to maintaining investor confidence and ensuring the stability of global financial markets.
US Treasury bonds, seen as a barometer of the health of the world’s largest economy, have for decades served as the global benchmark for government bond yields. Any perceived erosion of the Fed’s independence is closely monitored by international investors, who fear that political meddling could undermine a cornerstone of the global economic system.
Federal Reserve board members typically serve across multiple presidential administrations, and Powell himself was first appointed Fed chairman by Trump during his first term in office. However, since Trump’s re-election last year, the president has openly and repeatedly pressured Powell to lower interest rates at a faster pace, marking a departure from the longstanding norm of respecting the central bank’s autonomy.
Trump responded to Powell’s statement on Sunday, denying any prior knowledge of the Justice Department investigation. “I don’t know anything about it, but he’s certainly not very good at the Fed and he’s not very good at building buildings,” Trump was quoted as saying by NBC News.
Despite Trump’s disavowal, financial markets reacted with caution when trading resumed on Monday. The US dollar declined against major currencies, while the 10-year US Treasury bond, a key global benchmark, also fell. Safe-haven assets such as gold surged amid heightened uncertainty.
Francesco Pesole, a strategist at ING in London, noted that the simultaneous decline in the dollar, equities, and Treasury bonds evoked the turbulence of last spring when Trump launched a sweeping global tariffs offensive. “The downside risks for the dollar from any indications of further determination to interfere with the Fed’s independence are substantial,” Pesole said.
The investigation has drawn sharp criticism from lawmakers on both sides of the political divide. Republican Senator Thom Tillis condemned the probe, stating, “It is now the independence and credibility of the Department of Justice that are in question.” Tillis further vowed to oppose the confirmation of any nominee for the Federal Reserve, including for the upcoming Fed Chair vacancy, until the matter is fully resolved.
Senate Minority Leader Chuck Schumer, a Democrat, described the inquiry as an assault on the Fed’s independence. “Anyone who is independent and doesn’t just fall in line behind Trump gets investigated,” Schumer said.
Powell’s tenure as Fed chairman is set to expire in May, and Trump has already indicated that his choice of a successor will be influenced by the candidate’s willingness to immediately cut interest rates. In an interview with Politico last month, Trump suggested that rate policy would be a determining factor in his selection.
Trump has also publicly considered dismissing Powell but has so far refrained from doing so, instead directing criticism at cost overruns associated with the renovation of the Fed’s headquarters. In July, it was revealed that the cost of refurbishing the Fed’s 88-year-old Washington headquarters and an adjacent building had increased by 600 million dollars from an initial estimate of 1.9 billion dollars.
That same month, Trump made an unusual visit to the construction site, where he and Powell, both wearing hard hats, were seen disagreeing over the project’s escalating costs. The renovation project has since become a focal point in Trump’s criticisms of Powell, though analysts and political observers widely view the issue as secondary to the broader conflict over monetary policy.
The grand jury subpoenas Powell referenced are reportedly linked to his Senate testimony in June, during which he addressed questions about the renovation project. Powell’s statement on Sunday suggested that the inquiry is being used as a vehicle to pressure the Fed on matters unrelated to the construction costs.
The Federal Reserve’s independence has been a defining feature of American monetary policy for over a century. The institution was granted operational autonomy to insulate it from short-term political pressures and enable it to make decisions in the long-term interest of the economy. Previous administrations, both Republican and Democratic, have generally refrained from overt interference in the Fed’s deliberations, though tensions have occasionally arisen.
The current standoff represents one of the most direct challenges to the Fed’s autonomy in recent history. Observers have expressed concern that sustained political pressure could erode the credibility of the institution and destabilise financial markets both domestically and internationally.
Powell has led the Federal Reserve since 2018 and has navigated significant economic challenges, including the COVID-19 pandemic, subsequent inflationary pressures, and a series of aggressive interest rate increases aimed at curbing rising prices. The Fed began raising rates in 2022 and has since adopted a more cautious approach as inflation has moderated.
Trump’s calls for rapid rate cuts have been consistent with his broader economic agenda, which prioritises growth and low borrowing costs. However, the Fed has maintained that its decisions are guided by economic data and its statutory obligations, not political considerations.
