U.S. Federal Reserve (Fed) Chair Jerome Powell said on Sunday in a video message that U.S. prosecutors have opened a probe into his earlier comments to lawmakers about the renovation of the Fed buildings, and "threatened" an indictment – a move he described as a part of President Donald Trump's pressure campaign on monetary policy decisions.
Powell added in a statement that the bank received grand jury subpoenas on Friday, "threatening a criminal indictment" related to his Senate testimony in June, which concerned a major renovation project of the Fed office buildings.
He dismissed the possible threat of indictment over his testimony or the renovation project as "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," Powell said.
He branded the "unprecedented action" part of the "administration's threats and ongoing pressure."
"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," he said.
"But this unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure for lower interest rates and more broadly for greater say over the Fed," he said.
"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 ... Those are pretexts."
The latest development in a long-running effort by Trump for greater control over the Fed had immediate fallout, with Republican Senator Thom Tillis, a member of the Senate Banking Committee that vets presidential nominees for the Fed, saying the threatened indictment puts the Department of Justice's (DOJ) "independence and credibility" in question.
Tillis said he would oppose any Trump nominees to the Fed, including the coming choice of successor to Powell as chair, "until this legal matter is fully resolved."
At stake is the independence of the Fed – the world's most important central bank – to set U.S. monetary policy without undue influence by elected officials like Trump, who would prefer cheaper borrowing costs for their political appeal.
Powell – elevated to Fed chair by Trump in 2018 – will complete his term as Fed leader in May, but he is not obligated to leave, and a number of analysts saw the latest move by the administration as adding to the chances of him staying on in defiance.
The action, emerging about two weeks before Trump's effort to fire another Fed official, Governor Lisa Cook, will be argued before the Supreme Court, and was met with a guarded reaction on Wall Street.
Investors have been warily watching as the sparring match between Trump and the Fed has played out ever since Trump was elected to a second term in November 2024 on promises to improve affordability for Americans after a run of high inflation.
The investigation and Powell's pointed response sharply escalates a row that risks upending the independence of the Fed, a bedrock of U.S. economic policy and a cornerstone of its financial system, investors said.
The U.S. dollar fell by the most in three weeks on Monday. Gold shot to a record high, U.S. stock futures dropped and markets priced in a slightly higher chance of short-term interest rate cuts.
The Fed, which makes independent monetary policy decisions, has a dual mandate to keep prices stable and unemployment low.
Its main tool in doing so is by setting a key interest rate that influences the cost of borrowing across the economy, while its board members typically serve under both Republican and Democratic presidents.
Trump has consistently pressured Powell and the central bank to move faster in lowering interest rates, in a breach of the long-standing independence of the institution.
Trump on Sunday denied any knowledge of the Justice Department's investigation into the Federal Reserve.
"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," NBC quoted Trump as saying.
Senators from both sides of the aisle blasted the investigation.
Senate Minority Leader Chuck Schumer, a democrat, called the probe an assault on the Fed's independence.
"Anyone who is independent and doesn't just fall in line behind Trump gets investigated," Schumer said.
"Tonight's revelations mark a dramatic escalation in the administration's effort to kick the legs out from under the Fed, and could unleash a series of unintended consequences that go directly against President Trump's stated aims," said Karl Schamotta, chief market strategist at Corpay in Toronto.
The U.S. president has openly spoken about ousting Powell but stopped short of doing so, and focused instead on cost overruns for renovation of the Fed's Washington headquarters.
In July, the cost of the Fed's facelift of its 88-year-old Washington headquarters and a neighboring building was up by $600 million from an initial $1.9 billion estimate, the media reports suggested.
That same month, Trump made an unusual visit to the construction site during which the two men, clad in hard hats, bickered over the price tag for the makeover.
Trump has demanded the Fed cut rates sharply since resuming office in January, blaming its policy for holding back the economy and musing about firing Powell despite the legal protections ostensibly covering the Fed chair from removal.
The independence of central banks, at least in setting interest rates in order to control inflation, is considered a central tenet of robust economic policy, insulating monetary policymakers from short-term political considerations and allowing them to focus on longer-term efforts to keep prices relatively stable.
The inquiry into Powell "is a low point in Trump's presidency and a low point in the history of central banking in America," said Peter Conti-Brown, a Fed historian at the University of Pennsylvania.
"Congress did not design the Fed to reflect the president's daily fluctuations, and because the Fed has rebuffed President Trump's efforts to take the Fed down, he is launching the full weight of American criminal law against its Chair."
