Federal Reserve chair Jerome Powell has warned that a criminal investigation into the central bank's headquarters renovation is a 'pretext' that risks undermining the independence of US monetary policy, escalating a long-running confrontation between the Fed and the White House over interest rates.
In an unusual public intervention late on Sunday, Powell said the probe into the Fed's $2.5 billion (£1.86 billion) refurbishment project in Washington, D.C. was the result of mounting political pressure tied to the central bank's refusal to cut rates further.
He framed the investigation as a test of whether the Fed can continue to set policy based on economic evidence rather than political intimidation.
Powell Breaks Silence on Criminal Probe
Powell said the threat of criminal charges was a consequence of the Fed acting in what it believes is the public interest. He argued that monetary policy decisions should be guided by inflation data, employment trends and broader economic conditions, not by presidential preferences.
'This is about whether the Federal Reserve will be able to continue to set interest rates based on evidence and economic conditions,' Powell said, adding that the alternative would be policy driven by 'political pressure or intimidation'.
His comments came after federal prosecutors opened a criminal investigation into the renovation of the Fed's ageing headquarters, a project that has drawn scrutiny from senior figures aligned with President Donald Trump.
What the Investigation Is Examining
The investigation centres on cost overruns linked to the refurbishment of two decades-old Fed buildings. Critics have accused the central bank of mismanagement, pointing to the ballooning price tag of the project.
The Federal Reserve has defended the work, saying the upgrades were necessary to address long-standing safety and infrastructure issues. Officials have said the project involved removing asbestos and modernising electrical and ventilation systems that no longer met current standards.
A Justice Department spokesperson declined to comment on the specifics of the investigation but said the attorney general wants to prioritise cases involving potential misuse of taxpayer funds. CNN has reported that the White House has been asked for comment.
Political Pressure Over Interest Rates
The probe comes against the backdrop of sustained criticism of Powell by Trump and his allies over the pace of interest rate cuts. Although the Fed reduced rates three times in the second half of last year, policymakers have recently signalled that further cuts are unlikely in the near term.
Trump has repeatedly accused Powell of holding back economic growth by keeping rates too high. The criticism has included personal attacks and public calls for changes in Fed leadership, heightening concerns about political interference in central banking.
Wider Battle Over Fed Leadership
The controversy has also drawn attention to a broader struggle over the Federal Reserve's governance.
The administration is seeking to remove Fed governor Lisa Cook, who was appointed under former President Joe Biden. The Supreme Court is due to hear oral arguments later this month on whether a president has the authority to dismiss a sitting Fed governor.
Powell's term as chair ends in May, and Trump is preparing to announce his choice of successor. The timing of the investigation has intensified speculation that the probe could influence the transition at the top of the world's most powerful central bank.
High Stakes for Markets and Confidence
Economists and investors are watching developments closely, wary that any perception of political control over interest rate decisions could unsettle financial markets.
The Federal Reserve's independence has long been seen as a cornerstone of US economic stability and global confidence in the dollar.
With the investigation ongoing and key court rulings pending, Powell's warning has sharpened the focus on how far political pressure can extend into the heart of US monetary policy without reshaping it entirely.
