Powell Says DOJ Threatened Indictment as Fed-Renovation Probe Sparks Clash With White House

Federal Reserve discloses subpoenas and indictment threat

The Federal Reserve took the unusual step Sunday night of going on camera to defend itself after, it said, the Justice Department served it with federal grand jury subpoenas and threatened Chair Jerome H. Powell with criminal indictment.

In a prerecorded video and written statement posted on the central bank’s website, Powell said the inquiry centers on his June 2025 testimony to the Senate Banking Committee about a roughly $2.5 billion renovation of the Fed’s Washington headquarters complex. He also accused the Trump administration of using the case to pressure the central bank over interest rates.

“This new threat is not about my testimony last June or about the renovation of our Washington buildings,” Powell said. “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.”

Markets react as investors weigh risks to Fed independence

By Monday morning, financial markets were responding to what current and former officials described as an unprecedented clash between the White House and a central bank designed to be insulated from day-to-day politics.

The U.S. dollar weakened, gold climbed to record highs above $4,600 an ounce, and stock futures swung lower before paring some losses. Treasury yields moved modestly higher, a shift some analysts said suggested investors were demanding additional compensation for political risk.

“There’s open warfare between the Fed and the U.S. administration, and that is clearly not a good look for the U.S. dollar,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank.

Michael Brown, a strategist at trading firm Pepperstone, said investors appeared to be “starting to price in a political risk premium on U.S. assets.”

What the renovation is—and why costs have risen

Formally, the probe is tied to a years-long construction project that has already drawn attention on Capitol Hill.

The renovation covers the Marriner S. Eccles Building, the Fed’s 1930s headquarters on Constitution Avenue, and an adjacent structure often described as the 1951 Constitution Avenue Building, which the central bank took over in 2018. The Board of Governors approved an overhaul in 2017. Work began in 2022 and is expected to continue into the latter part of this decade.

Early estimates in 2021 and 2022 put the cost around $1.8 billion to $1.9 billion. By mid-2025, the budget had grown into the $2.46 billion to $2.5 billion range.

Fed officials have said the increase reflects asbestos and lead abatement; upgrades to aging mechanical and electrical systems; security and fire-safety requirements; and the higher cost of building underground in central Washington, where strict height limits constrain how much can be added above ground. They have also pointed to pandemic-era increases in labor and materials and the complexity of meeting historic-preservation standards.

In his June testimony, Powell acknowledged the project’s size and predicted it would be controversial, but described it as overdue work on buildings he said were “not really safe.”

Responding to allegations of lavish amenities, he said the renovation was not a gilded makeover.

“There’s no new marble,” Powell said then. “No special elevators. No new water features, and there’s no roof garden terraces.”

What prosecutors are examining

Justice Department officials have not publicly identified the statutes under review, and a spokesperson declined to comment, citing grand jury secrecy. People familiar with the matter said prosecutors are examining whether Powell or other officials misrepresented material facts to Congress or misused funds related to the project.

The investigation is being led by the U.S. attorney’s office in Washington, headed by Jeanine Pirro, a longtime ally of President Donald Trump. Attorney General Pam Bondi has previously directed U.S. attorneys to prioritize cases involving what she has called abuses of taxpayer dollars.

Powell emphasized that the Fed is not funded through annual congressional appropriations. Instead, it covers expenses through interest income and bank-paid fees, remitting excess profits to the Treasury. He said Congress had been regularly briefed on the renovation and that internal and external oversight bodies had reviewed the project.

“I have always taken seriously my obligation to testify truthfully and completely to Congress,” Powell said.

White House denies motive; former officials warn of lasting damage

The White House has sought to distance itself publicly. In at least one television interview, Trump said he was unaware of the investigation before it became public and denied it was intended to force the Fed to cut borrowing costs more aggressively. Trump has repeatedly criticized Powell over the pace of rate reductions amid slowing growth and market volatility.

Powell’s claim that the case is a “pretext” for political interference prompted unusually unified blowback. On Monday, all living former Fed chairs—Janet Yellen, Ben Bernanke and Alan Greenspan—joined former Treasury secretaries and former chairs of the White House Council of Economic Advisers in a joint statement.

“The reported criminal inquiry into Federal Reserve Chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine that independence,” the statement said. “This is how monetary policy is conducted in emerging markets with weak institutions. It has no place in the United States, whose greatest strength is the rule of law.”

Lawmakers from both parties also raised concerns. Sen. Thom Tillis, a North Carolina Republican on the Senate Banking Committee, said the subpoenas left “no remaining doubt” that some advisers around Trump were attempting to end the Fed’s independence, adding he would oppose any Fed nominee from the administration “until this legal matter is fully resolved.”

Why independence matters—and what comes next

Presidents have pressured Fed chairs before—Lyndon Johnson berated William McChesney Martin, Richard Nixon leaned on Arthur Burns, and Trump publicly criticized Powell during his first term. But current and former officials said the use of criminal investigative tools against a sitting Fed chair, linked to testimony about matters touching monetary policy, has no clear precedent.

Economists warn that if markets conclude presidents can use probes—or the threat of prosecution—to influence interest-rate decisions, investors could assume rates will be held too low ahead of elections. That could lift long-term inflation expectations, push Treasury yields higher, raise borrowing costs across the economy, and weaken confidence in the dollar.

Powell’s four-year term as chair runs through May 2026, though his term as a governor extends to 2028. He has said he intends to serve out his term.

For now, key details of the investigation remain out of public view: what documents have been requested, who else has been subpoenaed, and whether prosecutors have settled on specific charges.

What is visible is the scaffolding around the Fed’s headquarters on Constitution Avenue—and a parallel effort, Powell and his predecessors argue, to shore up the norms that keep the U.S. central bank from becoming another political agency.

“This is ultimately about whether the Federal Reserve can continue to set interest rates based on evidence and economic conditions,” Powell said Sunday, “or whether instead monetary policy will be directed by political pressure or intimidation.”

Investors, lawmakers and central bankers around the world are now watching to see which version of the Fed emerges from the dust.