A newly-launched criminal inquiry into the Federal Reserve chair, Jerome Powell, signals a dramatic escalation of the conflict between its central bank and the US president.
The US attorney’s office in the District of Columbia has launched a criminal investigation into Federal Reserve chair Jerome Powell.
“On Friday, the Department of Justice served the Federal Reserve with grand jury subpoenas, threatening a criminal indictment related to my testimony before the Senate Banking Committee last June,” Powell said in a statement.
The testimony concerned, in part, the central bank’s renovation of its historic Washington headquarters and whether Powell lied to Congress about the scope of the project.
While acknowledging the rule of law, Powell said the “unprecedented action” should be viewed in the broader context of the administration’s threats and ongoing pressure on the Fed.
“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings.
“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,” Powell stated.
As previously reported by the New York Times, the inquiry was approved in November by the US attorney for the District of Columbia, Jeanine Pirro, and involves an analysis of Powell’s public statements and an examination of spending records.
Powell said the legal threat is directly tied to the Fed’s monetary policy settings, which have long been a source of tension with US President Donald Trump, who has repeatedly urged the Fed to cut interest rates and challenged Powell’s position.
“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,” he 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.”
Tension between the pair dates back to Powell’s first year as chair in 2018. He was re-nominated to the role by the Biden administration in November 2021.
Commenting on the development, Betashares chief economist, David Bassanese said it appears to be a “last ditch effort” by President Trump to pressure Powell to both end his term as chairman in May and to step down from the Federal Open Market Committee (FOMC), which is due to run until January 2028.
“Trump is playing with fire in his repeated attempts to pressure the Fed into cutting rates,” Bassanese said.
For investors, Bassanese added that the move risks backfiring if it undermines market confidence in Fed independence and pushes long-term bond yields higher.
“After all, in the US it is long term rates – not the Fed’s control over short-term rates – that determine mortgage rates and most corporate borrowing costs.
“Rumours that President Trump may nominate his economic adviser, Kevin Hassett, as the next Fed chair will do little to reassure markets about the Fed’s independence,” he said.
Meanwhile, President Trump told NBC News on Sunday that he was unaware of the Justice Department’s actions.
“I don’t know anything about it, but [Powell is] certainly not very good at the Fed, and he’s not very good at building buildings,” Trump said.
However, President Trump may have alluded to the legal threat a fortnight ago.
Speaking at a PBS press conference, he said he was considering a “gross incompetence lawsuit” against Powell, repeatedly criticising the cost of the Fed’s headquarters renovation.
