Independence on Trial: Powell probe raises new questions for the Fed

For the first time in U.S. history, the sitting chair of the Federal Reserve has become the subject of a criminal investigation by the Justice Department, a development that sharply escalates tensions between the White House and the central bank while raising fresh concerns about the Fed’s independence.According to The New York Times, the investigation centres on Jerome Powell, who has led the Federal Reserve since 2018, and focuses on his oversight of a major renovation of the Fed’s headquarters in Washington. The refurbishment project, which involves modernising two historic buildings near the National Mall, is expected to cost about $2.5 billion—roughly $700 million more than originally budgeted.

Powell addressed the matter publicly on Sunday evening in a rare video message, pushing back against what he characterised as an effort by the administration to use legal pressure to influence monetary policy. His response marked a notable shift from the Fed’s earlier strategy of treating questions around the renovations as a technical and administrative issue rather than a political one.

The inquiry was approved in November by Jeanine Pirro, the U.S. attorney for the District of Columbia and a longtime ally of President Donald Trump. Prosecutors have issued grand jury subpoenas and are examining whether Powell misled Congress during testimony in June when he discussed the renovation project. They are also reviewing spending records and have contacted Powell’s staff multiple times.

The investigation comes amid a broader campaign by the president to pressure the Federal Reserve to cut interest rates. Trump has frequently criticised Powell and the central bank, portraying its reluctance to lower borrowing costs as an obstacle to economic growth. Last year, the renovation project emerged as a focal point of those attacks, with administration officials highlighting cost overruns and questioning the scope of the work. Trump toured the construction site and publicly sparred with Powell over the scale and expense of the project, according to The New York Times.

The renovations involve the Marriner S. Eccles Building, constructed in 1935, and a neighboring building on Constitution Avenue dating back to 1932. The Federal Reserve has said neither structure has undergone a comprehensive renovation since it was built. The project includes removing asbestos and lead, addressing structural and waterproofing issues, upgrading security and ensuring compliance with modern accessibility standards. While the plans preserve much of the original classical architecture, they also add modern features such as new atriums, skylights and a parking garage.

Early planning documents submitted in 2021 included amenities that later drew political scrutiny, such as private elevators and dining areas for senior officials. Several of those features were subsequently removed as plans evolved. The Fed has attributed the cost overruns to higher prices for materials, equipment and labor, as well as unforeseen complications like additional asbestos and soil contamination. Fed officials have also cited the impact of tariffs imposed in recent years on construction costs, The New York Times noted.

Powell’s testimony before Congress in June initially attracted limited attention, but Republican lawmakers later seized on discrepancies between earlier planning documents and the final design. Some accused the Fed chair of providing misleading information, prompting further questioning and scrutiny. In response, Powell asked the central bank’s internal watchdog to review the project.Since news of the investigation became public, Powell has received strong backing from prominent figures across the political and financial spectrum. Every living former Fed chair, along with several former Treasury secretaries, issued a joint statement warning that using prosecutorial tools to pressure the central bank threatens the institutional foundations of U.S. economic policy, according to The New York Times. Several Republican lawmakers, including members of the Senate Banking Committee, have also expressed support for Powell, underscoring the sensitivity of the issue ahead of future confirmations to the Fed’s leadership.

Legal experts told the NYT that the probe could have far-reaching implications. One concern is that the administration may seek to use the investigation as justification to try to remove Powell for cause, a step that would test longstanding norms protecting the Fed’s independence. Such a move could also influence ongoing legal battles involving other Fed officials targeted by the White House.

The White House has denied that the investigation is linked to interest-rate policy, but critics argue that the timing and context suggest otherwise. As The New York Times reported, the episode has intensified debate over whether the Federal Reserve can continue to operate free from political interference at a moment when monetary policy remains central to the health of the U.S. economy.