What Jerome Powell commented regarding the Justice Department's investigation into the Federal Reserve chair

Federal Reserve Chair Powell Faces DOJ Investigation Amid Political Tensions

Federal prosecutors have launched an investigation into Jerome Powell, the head of the Federal Reserve, intensifying the ongoing conflict between Powell and former President Donald Trump, who originally appointed him during his first term.

This development has sparked criticism from previous Federal Reserve leaders, a Republican member of the Senate Banking Committee, and Powell himself. Powell has consistently avoided addressing Trump’s threats to dismiss him, as well as the former president’s public criticisms and demands for lower interest rates. He has maintained that the Federal Reserve’s autonomy is protected by law.

In a statement reported by Reuters, former Fed chairs Janet Yellen, Ben Bernanke, and Alan Greenspan condemned the investigation, describing it as an unprecedented attempt to undermine the central bank’s independence through legal means.

On the evening of January 11, after the probe, which is connected to renovations at the Fed’s headquarters, Powell and the Federal Reserve confirmed the news. Powell released a video statement, calling the investigation a “pretext.”

Powell stated, “This is about whether the Federal Reserve can continue to base its interest rate decisions on data and economic realities, or if monetary policy will be dictated by political influence and intimidation.”

Trump has denied any involvement in the Justice Department’s actions against the Federal Reserve, telling that the investigation is unrelated to interest rate policy. According to the Times, the inquiry is focused on whether Powell misled Congress about the scope of the headquarters’ renovation project.

Wells Fargo economists commented in a January 12 report that, while they do not expect the investigation to immediately impact monetary policy, it will make it more challenging for the next Fed chair to build consensus among the Federal Open Market Committee’s 19 members.

Recently, the committee has voted to lower the federal funds rate at its last three meetings, currently setting it between 3.5% and 3.75%. Powell has repeatedly emphasized that policy decisions are based on economic data, not politics. The committee’s next meeting is scheduled for January 27.

Image: U.S. President Donald Trump gestures toward a document as Federal Reserve Chair Jerome Powell reviews figures during a tour of the Federal Reserve Board’s headquarters, which is under renovation, in Washington, D.C., July 24, 2025. (REUTERS/Kent Nishimura)

Concerns Grow Over Central Bank Independence

The investigation has heightened worries about the Federal Reserve’s ability to operate independently, concerns that have persisted since Trump began publicly criticizing Powell and attempted to remove Fed Governor Lisa Cook last year over allegations of mortgage fraud. Cook has denied these claims and remained in her role after the Supreme Court declined Trump’s request for her immediate dismissal, agreeing instead to hear arguments on the matter in January.

Powell’s Position Threatened Amid Renovation Controversy

Last year, Powell’s leadership was also called into question when White House officials accused him of either misleading Congress or mishandling the Fed’s headquarters renovation, after costs rose from $1.9 billion to $2.5 billion. The Federal Reserve responded by publishing a detailed FAQ explaining the reasons for the increased expenses.

The dispute over the renovation was evident during Trump’s July visit to the construction site. The meeting was marked by both tense exchanges over the project’s cost and lighter moments, such as Trump patting Powell on the back while requesting lower interest rates.

Powell’s term as chair ends in May, but he could remain on the Board of Governors until 2028. He has not indicated whether he intends to stay.

Trump is expected to announce his nominee for the next Fed chair soon, with White House economic adviser Kevin Hassett considered a leading candidate.

Hassett Denies Involvement in DOJ Probe

On January 12, Hassett stated he had no role in discussions with the Justice Department and was unaware if Trump had authorized the investigation into the Federal Reserve.

“I haven’t spoken to the Justice Department before they contacted Jay, so I don’t have much to add except that I respect the independence of both the Fed and the Justice Department. We’ll see how things unfold,” Hassett said in an interview.

Hassett expressed hope that the situation would resolve favorably for Powell but voiced skepticism about the renovation project, noting, “We’re looking at a building with significant cost overruns and plans that don’t seem to match previous testimony. It appears the Justice Department wants to investigate what’s happening with this unusually expensive project.”

He added, “If I were Fed chair, I’d want them to look into it.”

Senator Vows to Block Fed Chair Nominee

The announcement of the investigation quickly drew political backlash. Senator Thom Tillis of North Carolina declared on January 11 that he would oppose any Trump nominees to the Federal Reserve, including a new chair, until the legal issue is resolved.

“If there was any doubt that Trump Administration advisers are actively seeking to undermine the Federal Reserve’s independence, that doubt should now be gone. Now, it’s the independence and credibility of the Justice Department that are at stake,” Tillis said in a statement.

Tillis’s position complicates Trump’s efforts to appoint a new Fed chair, as he sits on the Senate Banking Committee, which must approve any nominee before a full Senate vote. The committee currently consists of 13 Republicans and 11 Democrats.

Senator Lisa Murkowski of Alaska supported Tillis’s stance in a social media post on January 12, agreeing that no Fed nominees should be considered until the investigation is resolved.

“After speaking with Chair Powell, it’s clear the administration’s investigation is simply an attempt at coercion,” Murkowski said. “If the Justice Department believes an inquiry is warranted due to project cost overruns—which are not uncommon—then Congress should investigate the Justice Department.”

She warned, “The consequences are too serious to ignore: if the Federal Reserve loses its independence, the stability of our markets and the broader economy is at risk.”

Financial Markets React to Investigation

Markets responded to the news with a moderate sell-off on Monday, January 12. U.S. stocks opened lower, with the S&P 500 and Nasdaq Composite each down 0.4%, and the Dow Jones Industrial Average falling 0.6%.

Government bonds also declined, with the 10-year Treasury yield rising two basis points to about 4.193%, and the 5-year yield up one basis point to roughly 3.77%. The U.S. dollar weakened by 0.4% against a basket of major currencies, while gold—often seen as a safe haven during uncertainty—rose more than 2%. The VIX, Wall Street’s “fear gauge,” jumped nearly 10%.

Analysts at TD Securities noted, “The news that the Fed received a subpoena could initially push yields higher in a knee-jerk reaction. However, Powell’s assertive response, indicating the Fed will stick to its principles, may reassure investors and help prevent a major sell-off. In fact, the market may interpret this resistance to political interference as a positive sign for the Fed’s future independence.”

Reporting by Andrea Riquier, USA TODAY