Washington, D.C., January 12, 2026 — Federal Reserve Chairman Jerome Powell issued a stark warning on Sunday, January 11, revealing that U.S. prosecutors have initiated an inquiry that could potentially lead to a "criminal indictment" against the central bank. In a rare video statement, Powell described the move as an escalation of "threats and ongoing pressure" from the Trump administration over monetary policy decisions, particularly interest rate cuts.
The subpoenas, delivered to the Fed on Friday, January 9, pertain to Powell's June 2025 testimony before the Senate Banking Committee regarding renovation costs for Federal Reserve office buildings. Powell characterized these demands as "pretexts" masking deeper conflicts with President Donald Trump, who has publicly lambasted the Fed for not slashing interest rates more aggressively to stimulate economic growth.
"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 stated emphatically. He labeled the inquiry an "unprecedented action" and part of a broader campaign aimed at undermining the Fed's independence, a cornerstone of U.S. economic policy since the bank's establishment in 1913.
Powell's tenure, set to expire in May 2026, has been marked by repeated clashes with Trump. The president, fresh off his re-election victory in November 2024, has intensified his criticism, demanding immediate rate reductions to counter what he calls "economic sabotage" by the Fed. Trump's rhetoric echoes his first term, when he frequently attacked Powell on social media and in interviews, once suggesting he could fire the chair despite legal protections for Fed independence.
In response to questions about the inquiry, Trump told reporters on Sunday, "I don’t know anything about it, but he’s certainly not very good at the Fed and he’s not very good at building buildings." The comment alluded to the ongoing controversy over the Fed's Washington headquarters renovation, where costs ballooned by approximately $600 million in 2025 due to unforeseen structural issues and supply chain delays. A memorable incident occurred in July 2025 when Trump made an unannounced visit to the construction site, donning a hard hat alongside Powell. Witnesses reported a heated exchange between the two, with Trump questioning the expenditures and Powell defending the project's necessity for operational efficiency.
The Fed's mandate, as outlined in the Federal Reserve Act, focuses on dual goals: maintaining stable prices (targeting 2% inflation) and promoting maximum employment. Interest rates serve as the primary tool, with the Federal Open Market Committee (FOMC) making decisions based on economic data rather than political directives. Under Powell, the Fed has navigated post-pandemic recovery, raising rates aggressively in 2022-2023 to combat inflation before beginning a gradual easing cycle in late 2024. However, Trump has advocated for deeper cuts, arguing they would boost stock markets and manufacturing.
Financial markets reacted with volatility as trading commenced on Monday, January 12. The U.S. dollar weakened against major currencies, dropping 0.8% against the euro and 1.2% against the yen in early sessions. Benchmark 10-year Treasury yields slid by 12 basis points to 3.45%, reflecting investor flight to safety. Gold prices surged 2.5% to $2,450 per ounce, signaling heightened uncertainty. Equity futures pointed to a lower open for Wall Street, with the S&P 500 down 0.7% pre-market.
Analysts expressed alarm over the potential erosion of investor confidence. Francesco Pesole, a currency strategist at ING, noted in a client brief: "The market mood resembles the 'sell America' sentiment during Trump's trade tariff disputes. Political interference in the Fed could lead to sustained volatility, as investors question the predictability of U.S. monetary policy." Other experts, including those at Goldman Sachs, warned that prolonged conflict might prompt capital outflows and higher borrowing costs for the government.
Bipartisan condemnation poured in from Capitol Hill. Republican Senator Thom Tillis of North Carolina, a member of the Senate Banking Committee, stated that the Justice Department's credibility is now "at stake." He vowed to block confirmation hearings for any new Fed nominees "until this legal matter is fully resolved," emphasizing the need to protect institutional integrity. Democratic Senate Majority Leader Chuck Schumer accused the administration of weaponizing federal agencies, saying, "This is an assault on the Fed's independence, targeting anyone who refuses to fall in line behind Trump."
The inquiry's origins trace back to Powell's Senate testimony, where he justified the renovation overruns as essential for modernizing facilities amid remote work shifts and cybersecurity enhancements. Critics, including some Republican lawmakers, questioned the expenditures during a time of fiscal scrutiny, but legal experts argue that pursuing criminal charges over such matters is highly unusual and potentially unconstitutional.
Trump has signaled his intent to appoint a more compliant successor to Powell, mentioning names like economist Arthur Laffer and former Treasury official Judy Shelton, both advocates for looser monetary policy. However, Senate confirmation requires a majority vote, and with Democrats holding a slim edge, any nominee perceived as politically motivated could face opposition.
The episode has reignited debates over Fed autonomy, a principle designed to insulate economic decisions from short-term political pressures. Historical precedents, such as President Richard Nixon's attempts to influence Fed Chair Arthur Burns in the 1970s, led to inflationary spikes and economic instability. Economists like Nobel laureate Paul Krugman have warned that similar interference today could undermine global trust in the dollar as the world's reserve currency.
As the inquiry unfolds, the Fed continues its work, with the next FOMC meeting scheduled for late January. Powell reiterated in his statement that the bank remains committed to its mandate, undeterred by external threats. The Justice Department has not commented on the subpoenas, citing ongoing investigations.
This development underscores the fragile intersection of politics and economics in the U.S., with potential ramifications for global markets. Stakeholders from Wall Street to international central banks are monitoring closely, hopeful for a resolution that preserves the Fed's independence.
