The dispute represents an unprecedented legal challenge to the Federal Reserve’s institutional independence. Economists warn that a Fed that yields to presidential pressure on rates would damage its credibility as an inflation fighter and could prompt investors to demand higher returns on U.S. Treasury debt.

The Trump administration’s Justice Department has subpoenaed the Federal Reserve and threatened Fed Chair Jerome Powell with criminal indictment, according to the Associated Press, marking a sharp escalation in the president’s campaign against the independent central bank.

Powell, dropping an earlier posture of ignoring Trump’s public criticism, said Sunday that the criminal-charges threat amounts to “pretexts” for the president to seize control of U.S. interest rate policy from the Fed’s technocrats. White House press secretary Karoline Leavitt told reporters that Trump did not direct the Justice Department to investigate Powell. Trump, speaking briefly on NBC News on Sunday, said he knew nothing about the investigation and denied it was intended to pressure the Fed chair on rates.

Economists warn that a politicized Fed that yields to presidential pressure would damage its credibility as an inflation fighter and could lead investors to demand higher yields before purchasing U.S. Treasury debt.

The renovation at the center of the dispute

The ostensible basis for the threatened charges is Powell’s June testimony before the Senate Banking Committee about cost overruns in the renovation of the Fed’s Washington headquarters.

The overhaul covers the Marriner S. Eccles Building — the Fed’s flagship, named after a chair from the 1930s and ’40s — and a second building the central bank acquired in 2018. Fed officials say the Eccles Building’s electrical, plumbing, and HVAC systems are near obsolete, with some components dating to the structure’s construction in the 1930s. The project involves removing asbestos and lead, installing modern communications systems, and preserving historic features including stonework, original elevators, and conference rooms. Washington’s restrictions on building heights forced some work underground, which added to costs. Construction materials and labor also rose sharply during the 2021–2022 inflation spike.

The project was originally budgeted at about $1.9 billion. Costs have swelled by $600 million to $2.5 billion. Because of the overruns, the Fed’s board canceled planned renovations of a third building in 2024. The central bank said consolidating its roughly 3,000 Washington-based employees into fewer buildings will reduce rent costs over time.

The Fed is self-financed, drawing on interest from its holdings of Treasury debt. Taxpayers are not directly funding the project.

Competing accounts at the Senate hearing

At the June Senate Banking Committee hearing, Chairman Tim Scott, Republican of South Carolina, claimed the renovation included “rooftop terraces, custom elevators that open into VIP dining rooms, white marble finishes, and even a private art collection.” Powell disputed the characterization in his testimony. “There’s no new marble,” Powell said. “There are no special elevators.”

Trump visited the building site in July alongside Powell and overstated the project’s cost, but downplayed concerns later that day. “They have to get it done,” Trump said. “Look, there’s always Monday morning quarterbacks. I don’t want to be that. I want to help them get it finished.” When asked whether the overruns amounted to a firing offense, Trump said, “I don’t want to put that in this category.”

The dispute appeared to ease after the summer before flaring again. At a December 29 news conference, Trump said his administration would “probably” sue Powell for “gross incompetence” on the renovation costs, calling it “the highest price of construction per square foot in the history of the world.”

The Supreme Court signaled last year that Trump cannot remove Powell simply over disagreements about interest rate policy, though the president could do so legally “for cause” — such as misconduct or dereliction of duty. The criminal-investigation approach may be aimed at building a factual record that satisfies that standard.

Trump has previously used investigations — which might or might not produce an actual indictment — against other political adversaries, including New York Attorney General Letitia James and former FBI Director James Comey, according to the AP.

In August, Trump said he was firing Fed governor Lisa Cook, citing allegations of mortgage fraud that Cook has denied. Cook sued to retain her position; courts have ruled she may remain while the case proceeds. The Supreme Court is scheduled to hear arguments in the Cook case on January 21.

Succession and a parallel renovation

Powell’s term as Fed chair expires in May; he holds a separate term as a Fed governor until January 2028. The subpoenas arrived as Trump was reported to be preparing to name a nominee to succeed Powell as chair this month.

Trump has faced criticism for his own decision to demolish the facade of the White House East Wing to construct a privately funded 90,000-square-foot ballroom at a reported cost of $250 million. Trump has said the project is funded by private donors rather than taxpayers, as is the Fed renovation.