Fed Chair Jerome Powell Faces Federal Criminal Probe – He Calls It “Just an Excuse”

Jerome Powell, the chair of the Federal Reserve, confirmed on Jan 11 that he is under a criminal investigation by federal prosecutors over a $2.5 billion renovation of the Fed’s historic headquarters.

Why Powell says the probe is politically motivated

In a short video posted on the Fed’s X account, Powell argued that the inquiry is “just an excuse” – a retaliation for the central bank’s refusal to bow to President Donald Trump’s demands to cut rates faster.

He warned that “the real question is whether the Fed can continue to set policy based on economic evidence rather than political pressure.”

Background of the investigation

According to the New York Times, the case is being overseen by the U.S. Attorney’s Office for the Southern District of New York, led by former New York prosecutor and Fox News host Jeanine Pirro, who was appointed by Trump.

The Justice Department’s press office said the probe “prioritises any alleged misuse of tax‑paying money,” hinting that the renovation budget may be the focal point.

What the renovation entails

Powell disclosed on Jan 9 that the Justice Department had threatened a criminal indictment over his June 2023 testimony before the Senate Banking Committee, which referenced a multi‑year, $2.5 billion overhaul of the Fed’s historic office buildings.

He insists the threat “has nothing to do with my June testimony or the renovation itself – it’s merely a pretext.”

Political backlash

Senator Thom Tillis (R‑NC), a member of the Senate Banking Committee, condemned the investigation, pledging to block any replacement nominee for Powell until the legal issue is fully resolved.

Democratic Senator Elizabeth Warren (D‑MA) echoed the sentiment, accusing Trump of trying to “install a puppet” and weaponising the Justice Department to undermine the Fed’s independence.

Potential scenarios for Powell

Economic strategist Brian Jacobsen of Annex Wealth Management predicts Powell could “stay in place by force of law” because his term ends in May 2026, while the Fed’s governing board serves until 2028.

If political pressure escalates, Trump may attempt to replace Powell with a more compliant figure, as he has previously nominated Stephen Miran for a Fed governor seat and sought the removal of Governor Lisa Cook on mortgage‑fraud allegations.

Implications for monetary policy

Should the investigation succeed in curbing the Fed’s autonomy, future rate‑setting could become subject to presidential whims, threatening the credibility of U.S. monetary policy and global financial stability.

Powell concluded, “I deeply respect the rule of law and democratic accountability. No one, not even the Fed chair, is above the law. Yet this unprecedented action must be viewed in the broader context of ongoing political threats and pressure.”