Powell Says Subpoena Threat Targets Fed Independence; Markets Jolt as Gold Hits Record

Gold at record highs, a weakening dollar and an extraordinary public warning from Federal Reserve Chair Jerome Powell have turned an obscure Washington construction project into a global referendum on the Fed’s political independence.

On Jan. 11, Powell appeared in a rare video statement posted to the central bank’s website to disclose that federal prosecutors had served the Fed with grand jury subpoenas two days earlier. The criminal investigation centers on whether Powell misled Congress about a multiyear, $2.5 billion renovation of the Fed’s historic headquarters in Washington.

Powell argued the building project itself was not the real issue.

“These are pretexts,” Powell said, warning that the threat of criminal charges was tied to the Fed setting interest rates “based on our best assessment of what will serve the public, rather than following the preferences of the president.”

He framed the dispute as a test of whether U.S. monetary policy would be guided by economic evidence and the rule of law, or by political pressure and intimidation.

Investors moved quickly after the statement. Gold jumped to roughly $4,600 an ounce, the dollar weakened in foreign-exchange trading, and longer-term Treasury yields climbed as markets priced in more inflation risk and a higher political risk premium on U.S. assets.

A renovation, an email and subpoenas

The investigation traces back to congressional scrutiny of the Fed’s renovation.

In June 2025, Powell testified before the Senate Banking Committee about the scope and cost of the long-planned overhaul of the Fed’s Depression-era complex on Constitution Avenue. Lawmakers pressed him on security upgrades, sustainability features and rising costs.

In November, the U.S. Attorney’s Office in Washington opened a criminal investigation into whether Powell’s testimony mischaracterized the project’s size or its cost overruns, according to officials briefed on the matter. The office is led by U.S. Attorney Jeanine Pirro, appointed during President Donald Trump’s second term.

In December, Assistant U.S. Attorney Carlton Davis emailed Fed officials seeking what Justice Department officials later described as an informal discussion about the project. Fed lawyers declined to engage through email and sought outside counsel, viewing the approach as a possible precursor to a formal probe.

Pirro’s office interpreted the lack of response as noncooperation and obtained grand jury subpoenas, served on the Fed on Friday, Jan. 9, seeking documents and potentially testimony related to Powell’s June appearance on Capitol Hill and the renovation.

Justice Department officials have said publicly the inquiry is limited to whether Powell’s statements to Congress were accurate. The White House has said Trump was not informed in advance.

Powell’s Jan. 11 statement suggested otherwise.

“I deeply respect law enforcement and congressional oversight,” he said. “But the facts here leave little doubt that this investigation is not about a building. It is about the Federal Reserve’s independence.”

Establishment backlash

The next day, prominent figures across the economic establishment issued unusually blunt, coordinated support for Powell.

All three living former Fed chairs—Alan Greenspan, Ben Bernanke and Janet Yellen—joined several former Treasury secretaries, including Robert Rubin, Henry Paulson, Timothy Geithner and Jacob Lew, in a joint letter condemning what they called an “unprecedented attempt to use prosecutorial attacks” to weaken the central bank.

“This is how monetary policy is made in emerging markets with weak institutions,” the group wrote.

Yellen, who has served as both Fed chair and Treasury secretary, has separately warned that pressure to slash rates to reduce the government’s interest burden is “the road to a banana republic,” comments widely seen as a rebuke to political interference.

Current Fed officials have been more circumspect. New York Fed President John Williams warned in a speech that political influence over monetary policy has “historically led to unfortunate outcomes,” citing episodes of high inflation. Fed Vice Chairs Philip Jefferson and Michelle Bowman emphasized adherence to the Fed’s mandate and data-driven decision-making without mentioning the probe.

One sitting governor, Stephen Miran, a Trump appointee and former administration adviser, dismissed criticism from abroad as inappropriate and said worries about damage to the Fed’s credibility were “just noise.”

Trump’s demands and succession politics

The clash comes as Trump continues to push for faster interest-rate cuts and as Washington focuses on who might lead the Fed when Powell’s term expires in May 2026.

Trump has repeatedly criticized Powell throughout his first and second terms, accusing the Fed of keeping rates “too high for too long.” While Trump has denied prior knowledge of the subpoenas, he has continued to attack Powell publicly, saying the Fed is “crushing the economy with high rates.”

Attention has also turned to potential successors. Kevin Hassett, the National Economic Council director and a close Trump ally, had been seen as a leading contender and has characterized the investigation publicly as “routine,” while faulting the Fed’s transparency on renovation costs. Betting markets have more recently boosted the odds for Kevin Warsh, a former Fed governor viewed as more acceptable to Senate Republicans and to investors; Warsh has not commented publicly on the probe.

The Senate—tasked with confirming any new Fed chair—could become a constraint. Several Republicans and centrist Democrats have expressed concern about overt political pressure on the central bank, and one Republican senator has privately indicated a willingness to block nominations perceived as contingent on easier money.

Markets price in political risk

Markets, often slow to reprice institutional risks, reacted sharply after Powell’s disclosure.

Gold’s surge and a parallel jump in silver were widely interpreted as hedges against both higher inflation and a loss of confidence in U.S. institutions. The dollar fell against a basket of major currencies. In bond markets, longer-dated Treasury yields rose and the yield curve steepened, signaling expectations of looser near-term policy but greater uncertainty about price stability over time.

Higher yields could raise borrowing costs for households, companies and the federal government, where interest payments already consume a growing share of the budget. BlackRock CEO Larry Fink has warned that a 10-year Treasury yield above roughly 5% to 5.5% could trigger a sharp correction in U.S. equities.

Stock markets have been volatile but comparatively resilient, swinging sharply in early sessions after Powell’s statement and then recovering before slipping modestly. Analysts say investors are weighing the prospect of earlier rate cuts—which can support stocks—against the longer-term risk of destabilizing a cornerstone U.S. institution.

Large investors are beginning to reposition. Pimco has said it is tilting away from U.S. securities in part due to policy unpredictability and what it views as interference with the Fed. Goldman Sachs chief economist Jan Hatzius has told clients the investigation has intensified concerns about Fed independence, contributing to dollar weakness and gold’s rise.

Some economists have begun referring to a growing “political risk discount” on Treasurys—language more commonly reserved for emerging markets than for the issuer of the world’s benchmark “risk-free” asset.

A new kind of pressure

While presidents have long tried to influence the Fed—President Richard Nixon’s pressure on Fed Chair Arthur Burns ahead of the 1972 election is a well-known example—those episodes typically involved private meetings and public jawboning, not criminal investigations.

Current and former officials and historians say there is no modern precedent for the Justice Department threatening a sitting Fed chair with indictment amid an active policy dispute.

Critics argue the probe resembles tactics used in some countries where central bank leaders have faced prosecution or removal after resisting politically popular but inflationary stimulus—episodes often followed by currency weakness, capital flight and higher borrowing costs.

Supporters counter that no public official is above the law and that it is premature to label the inquiry politically motivated given how little is publicly known about the evidence.

For now, Powell has pledged to proceed with the Fed’s work.

“We will continue to do our jobs,” he said, “without political fear or favor, guided only by our mandate and the data.”

How markets, lawmakers and the public ultimately interpret the confrontation may shape not only the outcome of a renovation probe in Washington, but also the interest rates Americans pay on mortgages, the value of their savings and the credibility of the dollar in the years ahead.