Not content with launching a dizzying cascade of international conflicts, Trump just lobbed a nuke at the Fed.
While Trump’s vendetta against the Fed’s Lisa Cook set for a January showdown before the Supreme Court, the Trump admin dramatically raised the stakes on Sunday when the NYT first reported, and minutes later Fed Chair Jerome Powell confirmed that the US central bank had been served grand jury subpoenas from the Justice Department threatening a criminal indictment, in what Bloomberg said was a dramatic escalation of the Trump administration’s attacks on the Fed.
As the NYT first reported, the US attorney’s office in the District of Columbia has opened a criminal investigation into Powell over the central bank’s renovation of its Washington headquarters and whether the Fed Chair lied to Congress about the scope of the project. The inquiry, which includes an analysis of Powell’s public statements and an examination of spending records, was approved in November by Jeanine Pirro, a longtime ally of President Trump who was appointed to run the office last year, the NYT sources said.
Attorney General Pam Bondi has directed US attorneys’ offices to look into cases of potential taxpayer abuse, said one of the NYT sources. In comments broadcast by NBC, Trump said that the DOJ’s Fed subpoenas “nothing to do with interest rates” and denied any involvement in the legal matter.
The investigation escalates Trump’s long-running feud with Powell, whom the president has continually attacked for resisting his demands to slash interest rates significantly (and, in retrospect, Trump was right as the Fed did in fact cut rates at its last 3 meetings, having belatedly observed the dramatic deterioration in the labor market without an offsetting surge in inflation). The president has threatened to fire the Fed chair, whom he nominated for the position in 2017, and raised the prospect of a lawsuit against him related to the $2.5 billion renovation, citing “incompetence.”
In a striking public response to the NYT report, Powell – who has historically ignored public commentary on Trump’s public assaults – issued a forceful written and video statement released Sunday evening using the Federal Reserve’s official account on X, in which he said the action was related to his June congressional testimony on ongoing renovations of the Fed’s headquarters. But he said, “This unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure.” The Fed Chair then continued:
“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; the Fed, through testimony and other public disclosures, made every effort to keep Congress informed about the renovation project. 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. This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation.”
“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. But this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure,”
“Public service sometimes requires standing firm in the face of threats. I will continue to do the job the Senate confirmed me to do with integrity and a commitment to serving the American people.”
In the statement, Powell said he intends to continue doing his job “with integrity and a commitment to serving the American people.” He did not discuss the fact that his delayed actions during the covid crisis sparked the biggest bout of runaway inflation in 40 years, presided over the biggest insider trading scandal at the Fed which led to multiple resignations at the central bank, and was explicitly political by cutting rates in September 2024, two months before the November election, in a bid to sway the vote for Kamala Harris.
Ironically, this latest dramatic escalation in the war between the White House and the Marriner Eccles building, which are located less than a mile apart, takes place even as Powell has been doing what Trump has wanted all along: cutting rates. The president has repeatedly called for aggressive rate cuts and repeatedly mused about firing Powell. In another extraordinary step, Trump also sought to fire Fed Governor Lisa Cook. The Supreme Court is set to take up the Cook case later this month.
While the Fed last month cut their benchmark rate to a target range of 3.5% to 3.75%, the third consecutive quarter-point cut, after holding rates steady through much of 2025 when inflation was supposedly about to surge, yet never did while shelter inflation sank to multi-year lows, officials have signaled they’re in no rush to lower rates again until they have more data on inflation and jobs.
Policymakers meet next in just over two weeks, on Jan. 27-28, with futures trading showing a minimal chance of a move at that gathering.
Powell’s term as chair will expire in May. His underlying seat on the Fed’s Board of Governors doesn’t end until 2028. He hasn’t indicated whether he intends to depart in May or stay on at the central bank.
Earlier this weekend, Trump said he has already picked his nominee to replace Powell. He has not named Powell’s successor, but Kevin Hassett, the director of the National Economic Council, is a front-runner.
In response to news of the investigation, Republican Senator Thom Tillis, a member of the Senate Banking Committee, which oversees the Fed, came to the Fed’s defense on Sunday night. In a statement, he said he would “oppose the confirmation of any nominee for the Fed — including the upcoming Fed chair vacancy — until this legal matter is fully resolved.”
“If there were any remaining doubt whether advisers within the Trump administration are actively pushing to end the independence of the Federal Reserve, there should now be none. It is now the independence and credibility of the Department of Justice that are in question,” Tillis said.
The Trump administration last summer ramped up scrutiny over the Fed’s renovation of two historic buildings and rising costs associated with the project. Fed budget documents show cost estimates for the project had risen to $2.5 billion in 2025, compared with $1.9 billion in 2023. In testimony last June, Powell broadly disputed media reports and criticisms from administration officials and some congressional Republicans that the project had extravagant design features, such as a VIP dining room and roof terrace gardens, Bloomberg reported.
Powell also said during the testimony that the project’s plans had “continued to evolve” and that some earlier features “are no longer in the plans.”
Office of Management Director Russ Vought referenced the testimony in a letter he sent to Powell last July asking for details on the renovation. Bill Pulte, director of the Federal Housing Finance Administration and a fierce critic of Powell, has alleged that Powell lied about the specifics of the project during the hearing and suggested the matter could amount to sufficient legal “cause” to justify removing the Fed chief from his role. At the time, Republican Representative Anna Paulina Luna also asked the DOJ to consider investigating and prosecuting Powell for allegedly lying under oath in his testimony.
Amid the controversy, Trump toured the renovation site and signaled the project was not reason enough to fire Powell. Months later, on Dec. 29, Trump said he was considering a “gross incompetence” lawsuit against Powell related to the project.
Under the law that created the Fed, the president can remove members of the Board of Governors only for cause, generally interpreted to mean inefficiency, malfeasance in office, or neglect of duty.
“It sounds like Trumpian vengeance and pressuring him to leave in May,” said Mark Spindel, author of The Myth of Independence: How Congress Governs the Federal Reserve, in reaction to the subpoenas. “If Powell hung around on the board, that complicates Trump’s majority — he needs the seats.”
Ironically, by escalating the Fed against Powell, Trump may have made Powell’s decision to stick around and mess with the president’s plans for an ultradovish Fed problematic.
Or maybe not, and it’s all for show: according to the latest Polymarket odds, the probability of Powell being federally charged by June 30 – a date that is beyond Powell’s chairman tenure – is only 18%.
The US dollar weakened on news of the probe, falling against all its major counterparts, while gold extended gains to a record high and bitcoin jumped. Futures on the S&P 500 Index fell 0.3%.
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