Fed Under Investigation Powell Claims Trump Targets High Interest Rates

TLDR

• DOJ issued subpoenas over Powell’s 2025 Senate testimony on Fed renovation.
• Powell says criminal threat is linked to pressure over interest rate policy.
• Trump denies any DOJ involvement and calls Powell ineffective at the Fed.
• Markets show low odds of Powell leaving early with muted financial reaction.

Federal Reserve Chair Jerome Powell said the U.S. Justice Department has subpoenaed the central bank in a criminal investigation. The probe focuses on Powell’s June 2025 Senate testimony on the $2.5 billion renovation of the Fed’s Washington headquarters. Powell said the DOJ’s move is linked to political pressure over interest rate policy under President Donald Trump.

Trump responded by denying any knowledge of the investigation and rejected claims that the subpoenas relate to his calls for rate cuts. Powell’s chair term ends in May 2026, placing Fed independence and leadership in focus ahead of the transition.

DOJ Subpoenas Tied to Powell’s Senate Testimony

Jerome Powell confirmed that the Department of Justice issued grand jury subpoenas to the Federal Reserve. The investigation centers on Powell’s statements to the Senate Banking Committee about the renovation of the central bank’s headquarters.

In a video posted Sunday, Powell said the DOJ had threatened a criminal indictment over the 2025 testimony. He said the action reflects efforts to pressure the Fed for not cutting interest rates as the Trump administration has urged.

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment,” Powell said.

The Fed said the cost increases were due to higher prices for labor and materials. The renovation aims to consolidate operations and cut long-term expenses.

Trump Rejects Link Between Probe and Monetary Policy

President Donald Trump denied any involvement in the DOJ probe during a Sunday interview with NBC News. He also dismissed suggestions that the investigation was politically motivated.

“I don’t know anything about it, but he’s certainly not very good at the Fed,” Trump said.

The president repeated his criticism of Powell’s rate decisions but denied using legal tools to influence policy. He said Powell should face pressure only from public frustration over high rates.

“What should pressure him is the fact that rates are far too high,” Trump said. “That’s the only pressure he’s got.”

Congressional Reactions and Subpoena Background

Republican Senator Thom Tillis said he would block any future Fed nominations until the legal dispute is resolved. He expressed concern about the DOJ’s role in matters connected to monetary policy.

The DOJ has not commented on the status or details of the investigation. A spokesperson said the department is focused on reviewing potential misuse of taxpayer funds but gave no timeline for next steps.

In July 2025, Rep. Anna Paulina Luna sent a referral to the DOJ accusing Powell of making false statements about renovation costs. The allegations followed a public disagreement between Powell and Trump during a site tour of the project. Trump claimed the true cost was higher than disclosed, but Powell corrected him during the press conference, saying the figure included past projects.

Markets Show Limited Reaction as Powell’s Term Nears End

Despite the criminal probe, prediction markets continue to show low expectations for Powell’s early departure. Polymarket data shows only an 8% chance that Powell leaves the chair position before March 31.

Kalshi data shows an 18% probability of Powell stepping down before May. Powell is allowed to stay on the Fed Board until 2028 even after his chair term ends. Crypto and metals rose slightly, though analysts attribute the move to broader macro trends. Bitcoin trades near $92,000, Ether above $3,100, gold under $4,500 per ounce, and silver up 4.5%.

Traders are already looking ahead to potential replacements. Kevin Warsh and Kevin Hassett are viewed as frontrunners, each with around 40% odds on Polymarket. Both have signaled support for a smaller Fed balance sheet and tighter policy controls.

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