Summary
- The US Justice Department’s investigation of Chair Jerome Powell has raised concerns about damage to Fed independence, potentially increasing volatility in global financial markets.
- Powell said the probe amounts to political pressure over policy-rate decisions, warning that market anxiety could intensify if monetary policy is swayed by politics.
- As Powell’s legal risk has been spotlighted with four months left in his term, equity index futures have turned lower, with the Fed’s shaken independence weighing on investor sentiment.
The Donald Trump administration has launched an investigation into Jerome Powell, chair of the US central bank, the Federal Reserve (Fed) (pictured). Critics warn that an unprecedented probe of a Fed chair could undermine the Fed’s independence and roil global financial markets.
Fed Chair Jerome Powell said in a video statement on the 11th (local time) that “the Fed received a grand jury subpoena from the US Department of Justice on the 9th and was notified of possible criminal charges related to my testimony last June before the Senate Banking Committee.” He added that “the testimony is partially related to the Fed headquarters renovation project.” The Trump administration has argued that Powell overspent on the Fed renovation, and the investigation was launched on that basis. Powell, however, pushed back, calling the probe political pressure over interest-rate decisions.
Markets shaken by unprecedented probe of Fed chair…Powell: “pressure campaign for rate cuts”
Trump administration raised issue last July
The Justice Department’s investigation is, on its face, tied to the renovation of the Fed headquarters in Washington, DC. It is focused on whether Powell made false statements to Congress about the project’s scope and cost. In reality, however, it has the hallmarks of President Donald Trump’s campaign of attacks on Powell.
◇ As criminal charges are mentioned…Powell: “I will fight back”
According to The New York Times (NYT) on the 11th (local time), Janine Pirro—an longtime Trump ally appointed last year as US Attorney General—reportedly approved the investigation last November, which includes analysis of Powell’s public remarks and a review of spending records. Powell strongly objected, calling it “an unprecedented action” and insisting it is nothing more than a pretext to justify Trump’s pressure for rate cuts.
Powell said that “the threat of criminal prosecution is the result of the Fed setting rates based not on the president’s preferences but on what it judges best serves the public interest.” He added, “This is about whether the Fed can continue to set rates based on evidence and economic conditions, or whether monetary policy will be dictated by political pressure or threats.” Powell stressed, “Public duty sometimes requires forcefully standing up to threats,” and said he would “continue my mission for the American people,” signaling his intent to confront the matter head-on.
In an interview with NBC News that day, Trump denied any involvement, saying he “didn’t know” a subpoena had been issued to the Fed. He also drew a line under Powell’s claim that the probe is part of the administration’s push for rate cuts, saying, “I never even thought of doing it that way.” Even so, Trump again pressed for lower rates, saying Powell “isn’t particularly adept at running the Fed or at building construction,” and that “what we should be putting pressure on him about is the fact that interest rates are too high.”
◇ Legal offensive with four months left in term
The Trump administration has claimed that the Fed headquarters renovation will cost $2.5 billion—$700 million more than the initial plan—arguing that luxury design changes such as a rooftop garden, an artificial waterfall, a VIP elevator and marble finishes drove costs higher. The Justice Department, in turn, took issue with Powell’s remarks last June, which were framed as an explanation regarding contemporaneous media coverage.
Testifying before the Senate Banking Committee, Powell rebutted reports that the Fed was spending excessively on the renovation, explaining that the headquarters building was “effectively in an unsafe condition.” Referring to the “Eccles” Building, built in the 1930s, Powell said “renovation was urgently needed,” adding that “the building was unsafe and waterproofing was inadequate.” Powell also denied reports that large-scale luxury amenities were included. “There is no VIP dining room, no new marble, no special elevator,” he said. “There is only the old elevator that was already there, and there is no artificial waterfall, no beehives, and no rooftop terrace garden.” He nonetheless acknowledged that “cost overruns are real.” However, Federal Housing Finance Agency Director Bill Pulte argued the testimony was false, saying “political bias and deceptive testimony before the Senate are sufficient grounds to remove Powell.”
Many interpret the White House’s focus on the renovation costs as an effort to find a rationale to replace Powell early, ahead of the end of his term in May this year. Trump has repeatedly criticized Powell for not complying with his demand for steep rate cuts, even publicly floating the possibility of dismissal. The Federal Reserve Act protects the Fed’s independence by preventing a president from removing a Fed governor without cause. But because removal before a term ends is possible if serious issues such as corruption emerge, the White House is highlighting the renovation-cost controversy.
In particular, raising Powell’s legal risk with fewer than four months remaining in his term has also been interpreted as an attempt to push out Powell from the Board for refusing to meet demands for rate cuts. Powell’s term as chair ends in May next year, but he can remain a Fed governor and continue participating in monetary policy decisions through January 2028. Powell has been asked multiple times whether he would stay on as a governor after his chair term ends, but he has not stated a clear position. As markets grow more uneasy over an unprecedented situation that threatens the Fed’s independence, equity index futures broadly turned lower.
By Lim Da-yeon allopen@hankyung.com
