Federal prosecutors have opened a criminal investigation into the Federal Reserve’s $2.5 billion renovation of its Washington headquarters, drawing a sharp public response from Chair Jerome Powell and intensifying a standoff between the central bank and the White House over interest-rate policy.
In a rare video statement released Sunday night, Powell said the probe amounted to a “pretext” linked to political pressure on the Fed, warning that the threat of criminal charges could undermine the institution’s ability to set monetary policy free from interference.
“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,” Powell said.
The Justice Department declined to comment on the investigation itself. A department spokesperson said Attorney General Chad Gilmartin wants to “prioritize investigating any abuse of taxpayer dollars.” The White House referred questions to the Justice Department.
President Donald Trump, who has repeatedly criticized Powell for keeping rates too high, denied knowledge of the investigation in an interview with NBC News but renewed his attacks on the Fed chair.
“I don’t know anything about it,” Trump said. “But he’s certainly not very good at the Fed, and he’s not very good at building buildings.”
The investigation focuses on the Fed’s multiyear renovation of its historic headquarters near the National Mall — a project whose ballooning costs have become a political flashpoint. Trump has previously threatened legal action over the renovation and last month said he was considering suing Powell for “incompetence.”
While the Fed is formally independent, its leadership is appointed by the president and confirmed by the Senate, making it vulnerable to political pressure — especially during periods of economic uncertainty and election cycles. Trump has repeatedly argued that the president should have a say in interest-rate decisions, a view rejected by mainstream economists and investors who see central-bank independence as essential to controlling inflation and maintaining market confidence.
Markets have so far shown little immediate reaction, but analysts warn the longer-term risks could be significant if policymakers begin to perceive legal or political retaliation as a consequence of monetary decisions.
“The independence of the Fed isn’t just a legal structure — it’s a credibility asset,” said one former central bank official. “Once that’s questioned, it can have real effects on inflation expectations, bond markets and capital flows.”
Powell’s term as Fed chair ends in May, and Trump has said he plans to appoint a replacement. The investigation, Powell suggested, could shape not only his own final months in office but the behavior of future Fed leaders as well.
“The threat of criminal charges is a consequence of the Federal Reserve doing its job,” Powell said. “This sends a message beyond me — to anyone who might next serve in this role.”
The case adds a new dimension to the broader confrontation between the White House and the central bank, raising questions about how far political pressure might extend — and how resilient the Fed’s institutional independence will prove to be.
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