Trump-Powell tensions flare as DOJ targets Fed

Federal Reserve chair Jerome Powell said on Sunday that the US department of justice has served the central bank with subpoenas and threatened it with a criminal indictment over his testimony about the Fed’s building renovations.

The move is an extraordinary escalation in President Donald Trump’s long-running battle with the Fed – an independent agency he has repeatedly attacked for not cutting its key interest rate as sharply as he wants. Analysts warned the clash could jolt markets and, over time, raise borrowing costs for mortgages and other loans.

Powell said the subpoenas relate to his testimony before the Senate banking committee in June about the Fed’s $2.5bn renovation of two office buildings, a project Trump has criticised as excessive.

After months of largely ignoring Trump’s criticisms and personal insults, Powell struck a far sharper tone in a video statement, calling the threat of criminal charges “pretexts” designed to undermine the Fed’s independence in setting interest rates.

“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,” Powell said. “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.”

The Fed has, until now, sought to ease tensions by scaling back some policies the administration opposed, including efforts to consider how climate change could affect the banking system, according to the chair.

‘Deeply disturbing development’

The renewed attacks – and Powell’s full-throated defence – revive a fight that had appeared to cool in recent months. Investors and economists have long argued that any sustained political pressure on the Fed risks damaging confidence in US policy-making and, in turn, in US Treasury markets.

“We expect the dollar, bonds and stocks to all fall in Monday trading in a sell-America trade similar to that in April last year at the peak of the tariff shock and earlier threat to Powell’s position as Fed chair,” Krishna Guha, an analyst at Evercore ISI, wrote in a note to clients.

“We are stunned by this deeply disturbing development, which came out of the blue after a period in which tensions between Trump and the Fed seemed to be contained,” Guha added.

In a brief interview with NBC News on Sunday, Trump insisted he did not know about the investigation into Powell. Asked if it was intended to pressure the Fed chair on rates, Trump said: “No. I wouldn’t even think of doing it that way.”

Powell’s term as chair ends in May, and Trump officials have signalled he could name a potential replacement this month. Trump has also sought to remove Fed governor Lisa Cook – an unprecedented step that has become a test of presidential power over the central bank. Courts have allowed Cook to remain in office while the case proceeds, and the US Supreme Court is set to hear arguments on January 21.

The subpoenas stem from Powell’s June appearance before the Senate banking committee, when chair Tim Scott, a Republican from South Carolina, accused the Fed’s renovation of including “rooftop terraces, custom elevators that open into VIP dining rooms, white marble finishes, and even a private art collection”.

Powell disputed those details, saying: “There’s no new marble … there are no special elevators”, and adding that some of the controversial items are “not in the current plan”.

Attack on Fed independence

In July, Russell Vought, director of the office of management and budget, wrote to Powell that his testimony about changes to the plans “raises serious questions about the project’s compliance” with approvals from a planning commission.

Later that month, Trump visited the building site and – standing next to Powell – overstated the project’s cost, before later downplaying concerns and saying: “They have to get it done.”

The justice department said on Sunday it could not comment on any particular case, but added that attorney-general Pam Bondi “has instructed her US Attorneys to prioritise investigating any abuse of taxpayer dollars”. A spokesperson for US attorney Jeanine Pirro’s office also declined to comment on an ongoing investigation.

Powell is the latest perceived adversary of the president to face a criminal investigation by the Trump administration’s justice department, as Trump has urged prosecutions of his political opponents – a shift that critics say threatens long-standing norms meant to insulate charging decisions from White House politics.

Concern has also surfaced inside Trump’s own party. North Carolina senator Thom Tillis said he would oppose any future nominee to the central bank, including any replacement for Powell, 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,” Tillis said. “It is now the independence and credibility of the department of justice that are in question.”

By Christopher Rugaber, AP economics writer. Associated Press writers Seung Min Kim, Eric Tucker, Michael Kunzelman, and Alanna Durkin Richer contributed to this report.

_{Top image: US President Donald Trump and Federal Reserve chair Jerome Powell look over a document of cost figures during a visit to the Federal Reserve in July 2025. Picture: AP Photo/Julia Demaree Nikhinson, File.}