Powell Fires Back as DOJ Probe Raises Alarms Over Fed Independence

With input from CNBC, the New York Times, BBC, CNN, and Business Insider.

Federal Reserve Chair Jerome Powell isn’t staying quiet anymore.

In a rare and unusually blunt move, Powell revealed Sunday that the US Department of Justice has opened a criminal investigation into him — a development he called “unprecedented” and deeply troubling for the independence of the central bank.

At the heart of the probe is Powell’s past testimony to a Senate committee about the costly renovation of two Federal Reserve buildings in Washington. Federal prosecutors have issued grand jury subpoenas and, according to Powell, have even threatened criminal charges.

Powell didn’t mince words about why he thinks this is happening.

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

Powell suggested the investigation stems from President Donald Trump’s anger over the Fed’s refusal to slash interest rates as aggressively as the White House wants. Trump has spent years publicly bashing Powell — whom he nominated back in 2017 — branding him “Mr. Too Late,” a “numbskull,” and worse.

Until now, Powell largely ignored the insults. Sunday marked the first time he forcefully pushed back.

Trump, for his part, claimed ignorance.

“I don’t know anything about it,” he told NBC News, before adding that Powell is “not very good at the Fed, and he’s not very good at building buildings.”

The renovation project in question — the first major overhaul of the Fed’s headquarters since the 1930s — includes asbestos removal, lead remediation and safety upgrades. The Fed estimates the cost at $2.5 billion, while Trump has repeatedly attacked the project as mismanaged, claiming it could run as high as $3.1 billion.

Reaction from economists and former officials was swift — and alarmed.

Former Fed Chair Janet Yellen called the investigation “extremely chilling,” saying markets should be worried.

“Knowing Powell as well as I do, the odds that he would have lied are zero,” Yellen said on CNBC. “This looks like they want his seat. This is the road to a banana republic.”

Republican Sen. Thom Tillis of North Carolina said he would block any Trump nominee to the Fed — including Powell’s replacement — until the legal matter is resolved.

“If there were any remaining doubt that advisers in the administration are trying to end the Fed’s independence, there should now be none,” Tillis said.

Democratic Sen. Elizabeth Warren was even harsher, accusing Trump of trying to “install another sock puppet” to take over the central bank.

Investors didn’t love the news either.

Stocks, bonds and the US dollar all slipped Monday — an unusual combo that revived talk of the “Sell America” trade. Gold jumped more than 3% to a record high above $4,600 an ounce, while silver surged even more. Wall Street’s fear gauge, the VIX, spiked.

“This is unambiguously risk-off,” said Krishna Guha of Evercore ISI. “Markets are reacting to threats to Fed independence.”

While the selloff was modest, analysts warned that prolonged pressure on the Fed could drive borrowing costs higher — the opposite of what Trump wants — as investors demand more compensation for political risk.

Powell, whose term as Fed chair ends in May, emphasized that he respects the rule of law and accountability.

“No one is above the law,” he said. “But this unprecedented action must be seen in the broader context of ongoing pressure on the Federal Reserve.”

Whether the investigation derails the Fed’s leadership transition or fizzles out remains to be seen. But one thing is clear: the quiet détente between the White House and the central bank is over.

And for the first time, Powell is fighting back — not just for himself, but for the institution he leads.