KEY POINTS
- Federal prosecutors are examining whether Powell provided false or misleading testimony to Congress about the Federal Reserve’s headquarters renovation.
- The Powell criminal probe comes amid escalating political pressure on the Fed to reduce interest rates more aggressively.
- The case raises broader questions about the legal limits of presidential influence over independent financial institutions.
WASHINGTON — Federal prosecutors have opened a criminal investigation into Federal Reserve Chair Jerome Powell over the central bank’s multibillion dollar renovation of its Washington headquarters and whether he misled Congress about the scope of the project, according to officials briefed on the matter.
The inquiry, led by the US attorney’s office for the District of Columbia, adds a new dimension to a long running conflict between President Donald Trump and the central bank over interest rates and institutional autonomy.
The investigation into Powell marks one of the most serious legal challenges ever faced by a sitting Federal Reserve chair.
While the probe centers on allegations related to a major construction project, its timing and political backdrop have drawn scrutiny from economists, legal scholars and global financial markets.
The Fed plays a central role in managing inflation, employment and financial stability in the world’s largest economy, and any threat to its independence carries consequences far beyond Washington.
Powell responded in a rare video statement Sunday, calling the inquiry “unprecedented” and warning that it could undermine the central bank’s ability to make decisions based on economic data rather than political pressure.
The Justice Department has not publicly detailed the scope of the investigation, but officials confirmed that grand jury subpoenas have been issued seeking records related to the renovation.
The Powell criminal probe centers on a long delayed modernization of two historic Federal Reserve buildings on Constitution Avenue, including the Marriner S. Eccles Building.
Originally approved in 2021, the project is intended to address structural deterioration, remove asbestos and lead contamination and bring the facilities into compliance with modern accessibility standards.
The renovation has drawn criticism for its cost overruns, now estimated at roughly $2.5 billion, and for early design elements that included upgraded amenities for senior officials.
During a congressional hearing in June, Powell said several of those features, including private dining rooms and special elevators, had been removed from the final plan.
Presidents can remove Federal Reserve officials only “for cause,” a standard historically interpreted to mean misconduct or neglect of duty.
Trump has repeatedly criticized Powell for resisting calls to slash interest rates, arguing that higher borrowing costs are slowing economic growth.
Powell, first appointed by Trump in 2017 and later reappointed by President Joe Biden, has emphasized the Fed’s legal mandate to pursue stable prices and maximum employment.
The current investigation follows other legal disputes involving Trump and independent agencies, including an effort to remove Fed Governor Lisa Cook over unrelated allegations.
Those actions have fueled debate over whether longstanding protections for institutional independence are being tested.
Legal experts say the Powell criminal probe could set a precedent for how far executive authority extends over nominally independent agencies.
“Congress intentionally insulated the Federal Reserve from political retaliation because monetary policy decisions often run counter to short term political interests,” said Peter Conti Brown, a professor of financial regulation at the University of Pennsylvania.
“If criminal investigations are used as leverage, that insulation weakens.” Economists note that global investors closely monitor the Fed’s credibility.
Any perception that its leadership could be removed or prosecuted for policy disagreements risks increasing market volatility and raising borrowing costs.
“The dollar’s role as the world’s reserve currency is partly built on confidence in US institutions,” said Eswar Prasad, a former International Monetary Fund official. “Eroding that trust can have ripple effects well beyond domestic politics.”
| Item | Original Estimate | Current Estimate | Projected Completion |
|---|---|---|---|
| Renovation budget | $1.9 billion | $2.5 billion | 2027 |
| Start of construction | 2022 | 2022 | Ongoing |
| Buildings affected | Two | Two | N/A |
| Last major overhaul | 1930s | 1930s | N/A |
The Federal Reserve has attributed the rising costs to inflation in construction materials, labor shortages and unexpected environmental hazards uncovered during demolition.
Powell said the Fed had kept lawmakers informed through testimony and public disclosures, adding that the investigation “is not about Congress’s oversight role.”
A spokesperson for Attorney General Pam Bondi declined to comment on the specifics of the probe but said US attorneys have been directed to prioritize investigations involving potential misuse of taxpayer funds.
Market participants are watching closely. “The question is not just whether Powell broke the law but whether this process itself destabilizes the Fed,” said Sarah Bloom Raskin, a former Fed governor.
“Even uncertainty can be damaging.” From Capitol Hill, reactions have split largely along party lines.
Some Republican lawmakers argue that any official, regardless of position, should be subject to scrutiny. Democratic lawmakers have warned that the investigation could be perceived as politically motivated.
The US attorney’s office must decide whether the evidence gathered warrants presentation to a federal grand jury.
Legal analysts caution that initiating an investigation does not guarantee charges, and several high profile inquiries in recent years have ended without indictments.
Meanwhile, Trump has said he plans to announce his preferred successor for Powell, whose term as chair ends in May though his term as a governor runs through January 2028.
Powell has not said whether he intends to remain on the Fed’s board if replaced as chair. For the central bank, the immediate challenge will be maintaining policy continuity amid uncertainty.
The Fed is scheduled to hold its next rate setting meeting later this month, and officials have emphasized that decisions will continue to be guided by inflation and employment data.
The Powell criminal probe is more than a legal dispute over construction budgets and congressional testimony. It is a test of how resilient the Federal Reserve’s independence remains in a polarized political environment.
For global markets, policymakers and ordinary consumers alike, the outcome will help define whether the world’s most influential central bank can continue to operate without fear of political reprisal.
As the investigation unfolds, its implications will extend beyond Powell himself, touching on the boundaries between law enforcement, executive power and the institutions designed to safeguard economic stability.
Author’s Perspective
In my analysis, the criminal probe of Fed Chair Jerome Powell highlights the tension between political pressure and central bank independence, with potential ripple effects on global financial stability.
I predict the Fed will adopt stricter transparency and reporting protocols for major projects to safeguard institutional credibility and preempt political influence.
For everyday Americans, this may subtly impact borrowing costs and loan availability, while investors should monitor Fed disclosures closely to anticipate interest rate trends.
NOTE! This report was compiled from multiple reliable sources, including official statements, press releases, and verified media coverage.
