Defiant Fed Chair Powell pushes back as DOJ probe raises concerns about central bank independence
· The Fresno BeeFederal Reserve Chair Jerome Powell's extraordinary response to an unprecedented Justice Department criminal investigation sends an emphatic and dramatic message: Trump administration efforts to curtail the central bank's independence via a criminal probe will be met with equally powerful resistance.
And that message is targeted not just to the White House, but also to the American public and global investors.
This conflict is not so much about cost overruns of the $2.5 billion renovations to the Fed headquarters as it is the Fed's refusal to acquiesce to President Donald Trump's incessant demands over the past 12 months to drastically lower interest rates.
"The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president," a defiant Powell said in a two-minute video released late Jan. 11. (Read the transcript here.)
Markets showed limited immediate reaction, though analysts warned that the longer-term implications for central bank independence were more significant.
Powell pushes back on DOJ subpoena action
Powell said the DOJ on Jan. 9 served the Fed with grand jury subpoenas, threatening a criminal indictment related to his testimony before the Senate Banking Committee in June 2025 on the cost of the renovations.
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‘'The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,'' Powell said.
"This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions - or whether instead monetary policy will be directed by political pressure or intimidation,'' the chair added.
In a short interview with NBC News after Powell's announcement, President Trump denied knowing about the Justice Department subpoenas, Politico reported. The president added that any criminal investigation was not related to his frustration with Powell over interest rates.
White House National Economic Council Director Kevin Hassett, considered a top finalist to replace Powell when his term expires in May, told CNBC Jan. 12 that he had not been involved with the DOJ investigation.
"The Fed has amongst the highest interest rates on earth right now, and President Trump is frustrated with that. But I don't think that has anything to do with what was going on this weekend," Hassett said.
Reaction to DOJ probe focuses on Fed independence
Economists, politicians, and traders pushed back on President Trump's denial.
"Trump has now made it crystal clear that he will accept no less than the Fed bending its knee to him in its decision-making," Eswar Prasad, a Cornell University economist, told The Wall Street Journal.
The New York Times reported that the probe, which includes an analysis of Powell's public statements and an examination of spending records, was approved in November by Trump loyalist Jeanine Pirro, the U.S. Attorney for the District of Columbia.
The criminal probe could have a chilling effect on all members of the Federal Open Market Committee, as well as Powell's replacement to bypass data in favor of political interference when setting monetary policy, Fed watchers warned.
"God bless Powell for fighting," Aaron Klein, a financial regulations expert at the Brookings Institution and a frequent Fed critic, told The Times on Jan. 12. "Powell is right to stand up for the board and the organization. I only wish the Fed stood up for all of its governors and not just its chair."
Related: Investors focus on Fed independence as chair decision looms
The DOJ investigation "is the road to a banana republic" in terms of compromising Fed independence, former Fed Chair Janet Yellen told CNBC Jan. 12.
Mohamed El-Erian, a professor at the Wharton School and chief economic adviser at Allianz, also cautioned that Powell's reaction to the subpoena will "get a lot more attention in the marketplace than the subpoena itself," Politico reported Jan. 12.
Possible next steps in the DOJ's Fed investigation drama
Pirro's office will have to try to bring evidence to a grand jury and hope for an indictment that would lead to a jury trial.
The president has mused about firing Powell, which would undoubtedly end up in court, especially after the Supreme Court indicated last May that the Federal Reserve was not subject to executive oversight.
The Supreme Court will hear arguments later this month on Trump's attempt to fire Fed Governor Lisa Cook "for cause" over alleged mortgage-fraud charges.
Republican Senator Thom Tillis, a member of the Senate Banking Committee, said in a Jan. 11 statement he would "oppose the confirmation of any nominee for the Fed - including the upcoming Fed chair vacancy - until this legal matter is fully resolved."
How the Fed manages interest rates
The Fed chair is only one of 12 votes on the policymaking Federal Open Market Committee, which sets the benchmark Federal Funds Rate which controls short-term borrowing.
So the president's stated goal of immediate interest rates at 1% or lower - currently 3.50% to 3.75% - could be out of the purview of the new chair who takes over when Powell's term ends in May.
The president has also made it very clear that he wants the next chair to listen to his views on the economy and then execute his agenda, not only on monetary policy, but also on the Fed's $6.7 trillion balance sheet and deregulation of the banking industry.
The FOMC meets eight times a year to decide whether to raise, lower, or hold interest rates in accordance with its congressional dual mandate of low unemployment and stable prices.
- A very divided FOMC heads into its Jan. 28 meeting with an expected historic streak of dissents, as tensions mount within its dual mandate: a cooling labor market and sticky inflation.
- The CME Group FedWatch Tool predicts a 5% chance of a rate cut this month.
Related: Fed split deepens as Miran calls for 1.5-point rate cut
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This story was originally published January 12, 2026 at 9:45 AM.