WASHINGTON — The Trump administration’s criminal investigation of Federal Reserve Chair Jerome Powell appeared on Monday to be emboldening defenders of the U.S. central bank against the efforts of President Donald Trump to control the Fed.
The backlash reflected the bigger stakes of a contest about the fate of the Fed’s independence, the balance of power within the federal government, and the path of the U.S. economy. Trump has long publicly lashed out against Powell for not slashing the Fed’s benchmark interest rates to his liking, but the prospect of a criminal indictment was a step too far for an institution that has an outsized influence on both inflation and the job market.
Several Republican senators have condemned the Department of Justice’s subpoenas of the Fed, which Powell revealed Sunday and characterized as “pretexts” to pressure him to sharply cut interest rates as Trump has demanded. Powell also said the Justice Department has threatened criminal indictments over his June testimony to Congress about the cost and design elements of a building renovation.
Republican Sen. Dave McCormick of Pennsylvania objects to the Justice Department’s investigation of Powell.
“I think the Federal Reserve renovation may well have wasted taxpayer dollars, but the proper place to fix this is through Congressional oversight,” McCormick said in a statement.
He said he believes strongly in an independent Fed, and he also agrees with Trump that Powell “has been slow to cut interest rates.”
But, he said, “I do not think Chairman Powell is guilty of criminal activity.”
Trump has repeatedly used investigations — which might or might not lead to an actual indictment — to attack his political rivals, including Fed governor Lisa Cook, New York Attorney General Letitia James, and James Comey, the former FBI director.
White House press secretary Karoline Leavitt told reporters that Trump did not direct his Justice Department to investigate Powell.
“One thing for sure, the president’s made it quite clear, is Jerome Powell is bad at his job,” Leavitt said. ”As for whether or not Jerome Powell is a criminal, that’s an answer the Department of Justice is going to have to find out.”
A bipartisan group of former Fed chairs and top economists on Monday compared the Trump administration’s actions to moves made in more impoverished countries. Some analysts said that the financial market’s muted response reflects a widespread belief that Powell could successfully fend off the allegations that his description to lawmakers of the Fed’s $2.5 billion project was criminal.
“I think this is ham-handed, counterproductive, and going to set back the president’s cause,” said Jason Furman, an economist at Harvard and former top adviser to President Barack Obama. It could also unify the Fed’s interest-rate setting committee in support of Powell, and it means “the next Fed chair will be under more pressure to prove their independence.”
The subpoenas apply to the price tag of renovating Fed buildings, including its marble-clad headquarters in Washington, D.C. They come at an unusual moment when Trump was teasing the likelihood of announcing his nominee this month to succeed Powell as the Fed chair, after Trump last summer played down the idea that the Fed’s renovation costs were a fireable offense.
While Powell’s term as chairperson ends in May, he has a separate term as a Fed governor until January 2028. Trump’s moves could make it more likely that Powell will stay on the Fed’s governing board after his term as chairperson ends in May in order to defend the Fed’s independence from politics in making its decisions on interest rates, Furman said.
While an interest-rate cut was already considered unlikely at the Fed’s next meeting in about two weeks, the news of the Justice Department investigation likely means that the Fed would avoid cuts at the next meeting in order to send the message that it cannot be pressured by politics, economists said.
Powell quickly found a growing number of defenders among Republicans in the Senate, who will have the choice of whether to confirm Trump’s planned picks for Fed chair.
Sen. Thom Tillis, a North Carolina Republican and member of the Senate Banking panel, said late Sunday in response to the subpoenas that he would oppose any of the Trump administration’s nominees for the Fed, including to replace Powell.
“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 said.
Sen. Lisa Murkowski, an Alaska Republican, backed Tillis’ approach Monday.
“After speaking with Chair Powell this morning, it’s clear the administration’s investigation is nothing more than an attempt at coercion,” Murkowski said. She voted against the White House’s nomination of Stephen Miran to the Fed’s board in September, which was barely approved by a 48-47 vote. Miran continues to be Trump’s chairperson of the White House Council of Economic Advisers, although he is on leave due to his post at the Fed.
Trump has for the past year sought to pressure Powell into having the Fed slash its benchmark interest rates — a move that reflects a fundamental break over whether inflation still poses any risk to the U.S. economy.
Powell maintains that inflation is still elevated in the aftermath of Trump’s tariffs and has moved cautiously, whereas Trump claims that inflation is no longer a worry and rates should be dramatically slashed.
“I have carried out my duties without political fear or favor, focused solely on our mandate of price stability and maximum employment,” Powell said in a Sunday night video disclosing the subpoenas. “Public service sometimes requires standing firm in the face of threats.”
If Powell stays on the board after his term as chair ends in May, the Trump administration would be deprived of the chance to fill another seat on the board.
Powell has declined at several news conferences to answer questions about his plans.
Asked on Monday by reporters if Powell planned to remain a Fed governor, Kevin Hassett, director of the White House National Economic Council and a leading candidate to become Fed chair, said he was unaware of Powell’s plans.
“I’ve not talked to Jay about that,” Hassett said.
Powell, jettisoning the cautious approach he has taken since Trump began attacking him last year for not cutting rates sharply enough, said on Sunday the subpoenas were a “pretext” to force the Fed to cut its key short-term interest rate.
Sen. Kevin Cramer, a Republican from North Dakota and a frequent Powell critic, said Monday that he does not think that the Fed chair is “a criminal” and said he hopes that “this criminal investigation can be put to rest quickly,” according to CNBC.
The bipartisan group of former Fed chairs and top economists said in their Monday letter that the White House’s legal actions and the possible loss of Fed independence could hurt the broader economy.
“This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly,” the statement said. “It has no place in the United States whose greatest strength is the rule of law, which is at the foundation of our economic success.”
The statement was signed by former Fed chairs Ben Bernanke, Janet Yellen, and Alan Greenspan, as well as former Treasury Secretaries Henry Paulson and Robert Rubin.
Still, Trump’s pressure campaign had been building for some time. The president relentlessly criticized and belittled Powell, attempting to blame him for some of the discontent over the economy that followed the president’s own tariff announcements.
Trump appeared to preview the shocking news of the subpoenas at a Dec. 29 news conference. The president said his administration would “probably” sue Powell for “gross incompetence” on the cost of renovations, calling it the “highest price of construction per square foot in the history of the world.”
“He’s just a very incompetent man,” Trump said. “But we’re going to probably bring a lawsuit against him.”
