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- The Investigation’s Stated Basis
- Why the Renovation Costs Are Irrelevant
- Powell’s Public Response
- Market Response to the Investigation
- The Constitutional Problem: Removal Without Direct Mechanism
- How a Fed Chair Functions Under Criminal Investigation
- International Precedent and Concern
- Congressional Response and Leverage
- Possible Outcomes and Their Implications
- What’s at Risk
In January 2026, the Department of Justice launched a criminal investigation into Federal Reserve Chair Jerome Powell over his congressional testimony about a building renovation. Nearly every mainstream economist and bipartisan group of lawmakers has described this as a pretext to restrict the Federal Reserve’s independence. What’s at stake is whether criminal law can become a tool for pressuring central bankers into policy decisions that serve political preferences rather than economic evidence.
The timing makes its purpose transparent. Powell has maintained interest rates at levels that conflicted with President Trump’s public demands for rate cuts. Now prosecutors are examining whether Powell lied to Congress about construction costs at the Fed’s headquarters.
The Investigation’s Stated Basis
In June 2025, Powell testified before the Senate Banking Committee about renovations to the Federal Reserve’s Marriner S. Eccles Building. The project, initially estimated at $1.9 billion in 2021, had grown to $2.5 billion.
Powell stated: “There’s no new marble. We took down the old marble, we’re putting it back up. We’ll have to use new marble where some of the old marble broke. But there’s no special elevators. They’re old elevators that have been there. There are no water features. There are no beehives, and there’s no roof garden terraces.”
This is the factual basis for a criminal investigation of the Federal Reserve Chair—a dispute about whether describing stormwater management systems as “not rooftop garden terraces” constitutes perjury.
Why the Renovation Costs Are Irrelevant
The Federal Reserve does not use taxpayer money. The Fed funds itself through interest earned on securities it holds. No congressional appropriations. No tax dollars.
The renovation addressed genuine infrastructure problems. By the time renovation planning began, the structures contained asbestos, lead paint, and electrical systems that no longer met building codes. The Fed documented every major decision, submitted to review by the National Capital Planning Commission, and underwent regular audits by its independent Inspector General. Cost overruns reflected inflation, labor shortages, and additional contamination discovered during excavation.
Powell’s Public Response
Standard legal advice would be to stay silent. Powell ignored that advice because he understood something fundamental: the threat alone constrains Fed independence, even if charges are never filed.
By going public, Powell controlled the narrative before prosecutors could frame it, created a contemporaneous record of his assertion that the probe lacked legitimate basis, and signaled to Fed staff, the Federal Open Market Committee, international central banks, and financial markets that he wouldn’t be intimidated into policy capitulation.
Market Response to the Investigation
Financial markets responded to Powell’s announcement with movements that had little to do with economic data. The dollar index showed unusual volatility as international investors reassessed U.S. monetary credibility.
Institutional investors have started referring to the “Fed independence premium”—the additional yield they demand on longer-duration Treasury bonds when they perceive the central bank can’t act freely. If the Fed might be pressured to keep rates lower than economic conditions justify, investors expect higher future inflation and demand higher interest rates to compensate. This becomes self-fulfilling: if investors expect the Fed to pursue lower rates due to political pressure, they demand higher yields on Treasuries, raising the government’s borrowing costs and spurring the inflation they feared. The threat alone damages monetary policy credibility without a conviction.
The Constitutional Problem: Removal Without Direct Mechanism
The Trump administration’s use of criminal investigation appears to reflect uncertainty about constitutional mechanisms for removing a Fed Chair. Setting monetary policy contrary to the President’s preferences, while faithfully executing the statutory mandate Congress gave the Fed, doesn’t constitute grounds for removal.
Criminal investigation may represent an alternative mechanism. If prosecutors convince a jury that Powell committed perjury while executing his statutory duties, the President could justify removal on grounds that Powell has been convicted of crime. But using criminal law as an indirect removal mechanism when direct removal is constitutionally constrained is precisely the kind of prosecutorial abuse that federal law and DOJ’s own regulations are designed to prevent.
How a Fed Chair Functions Under Criminal Investigation
Powell now faces simultaneous roles: serving as the nation’s chief monetary policymaker while defending against criminal prosecution.
Personal legal jeopardy: Criminal penalties for perjury can reach five years in prison, creating incentive to modify conduct to avoid further prosecutorial targeting.
Institutional exposure: The Federal Reserve Board itself received grand jury subpoenas, meaning the institution’s records, communications, and decision-making processes are subject to investigative scrutiny. Fed staff now have incentive to be cautious about documentation and candid policy discussions.
Market uncertainty: Investors are watching to see if Powell feels safe making decisions that contradict the President’s preferences. Every Federal Open Market Committee meeting he attends while the probe is active is observed through the lens of whether he’s acting freely or under constraint.
Congress told the Federal Reserve to focus on two goals: jobs and stable prices, using evidence and economic data to inform policy. A Fed Chair operating under criminal investigation for prior policy decisions cannot function with complete institutional freedom.
International Precedent and Concern
Central bankers worldwide are observing the situation with concern about precedent. The international financial system depends fundamentally on confidence in the U.S. Federal Reserve’s independence and credibility.
Turkey offers a cautionary comparison. President Erdogan has dismissed multiple central bank governors when they refused to follow his preferred interest rate policies. The results have been economically catastrophic: the Turkish lira lost over 50 percent of its value against the dollar, inflation has reached levels not seen in modern Turkish history, and the credibility of Turkish economic institutions has collapsed internationally.
The Powell probe uses criminal law as an indirect tool, potentially maintaining the appearance of neutral law enforcement while serving as an instrument of executive branch monetary policy pressure—a mechanism even more obscured than Turkey’s direct dismissals.
Congressional Response and Leverage
Congress’s response has been bipartisan in defending Fed independence. Senator Thom Tillis, a North Carolina Republican and Trump supporter, stated: “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’s decision to block Kevin Warsh’s confirmation as Powell’s replacement until the probe is resolved effectively leverages the Senate’s power to approve or reject nominees to protect Fed independence. Warsh, a former Federal Reserve Governor and Trump ally, was nominated to replace Powell when his term as Chair expires in May 2026.
Congress could enact legislation explicitly reaffirming Fed independence and constraining executive or prosecutorial interference with Fed operations. The bipartisan concern suggests it might be achievable if the probe continues.
Possible Outcomes and Their Implications
If prosecutors bring charges, Powell faces pressure to resign, allowing the President to appoint an interim Chair and eventually a successor. Proving perjury requires demonstrating that his statements were materially false and made with knowledge of their falsity. The factual record about the renovation provides substantial grounds for his defense.
But the probe itself, whether or not it results in charges, accomplishes significant goals for those seeking to pressure the Fed. It signals that criminal prosecution is a risk for policy decisions and creates legal costs and distraction.
Powell’s term as Chair expires in May 2026. His term as a Board member extends until 2028. The administration has nominated Warsh to replace him, but that nomination is blocked. A stalemate results: the administration can’t install its preferred Fed Chair, but Powell can’t simply continue as Chair indefinitely once his term expires.
If prosecutors decline to bring charges, Powell would be technically exonerated but would remain in a position where the President has demonstrated willingness to use criminal law to pressure monetary policy decisions.
What’s at Risk
The probe of Jerome Powell represents far more than a dispute over building renovation costs. It’s a test case for whether criminal law can be weaponized to constrain the monetary policy independence that Congress explicitly designed to protect from political pressure.
If prosecutors can bring or threaten criminal charges against a Fed Chair for policy decisions and explanations of those decisions, then the legal protections for Fed independence would become meaningless. Future Fed Chairs would operate knowing that policy decisions contrary to presidential preferences could trigger criminal investigation, creating pressure toward policy accommodation that contradicts both congressional mandate and economic reality.
The investigation pressures the Fed through personal legal jeopardy, institutional exposure for the Federal Reserve itself, signaling effects to financial markets that doubt the Fed’s ability to act freely, and precedent established for future prosecutorial use of criminal law against independent agency officials. Each mechanism achieves the objective of constraining monetary policy independence without requiring prosecution success.
The stakes encompass how the Constitution sets up independent agencies, the rule of law’s requirement for neutral prosecution, and the practical ability of the Federal Reserve to achieve its congressionally-mandated objectives for maximum employment and stable prices.
This probe will be remembered as either a dangerous precedent—establishing that criminal prosecution can pressure monetary policy decisions in ways that undermine central bank independence and damage the overall health of the economy—or as a challenge to Fed independence that Congress and the courts ultimately rejected, reaffirming principles that protect independent agencies from political interference.
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