Federal Reserve Chair Powell says DOJ has subpoenaed central bank,
threatens criminal indictment
[January 12, 2026]
By CHRISTOPHER RUGABER
WASHINGTON (AP) — Federal Reserve Chair Jerome Powellsaid Sunday the
Department of Justice has served the central bank with subpoenas and
threatened it with a criminal indictment over his testimony this summer
about the Fed's building renovations.
The move represents an unprecedented escalation in President Donald
Trump's battle with the Fed, an independent agency he has repeatedly
attacked for not cutting its key interest rate as sharply as he prefers.
The renewed fight will likely rattle financial markets Monday and could
over time escalate borrowing costs for mortgages and other loans.
The subpoenas relate to Powell's testimony before the Senate Banking
Committee in June, the Fed chair said, regarding the Fed's $2.5 billion
renovation of two office buildings, a project that Trump has criticized
as excessive.
Powell on Sunday cast off what has up to this point been a restrained
approach to Trump's criticisms and personal insults, which he has mostly
ignored. Instead, Powell issued a video statement in which he bluntly
characterized the threat of criminal charges as simple “pretexts” to
undermine the Fed’s independence when it comes to setting 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,"
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.”
It's a sharp departure from the Fed's understated response to Trump this
year. The central bank has attempted to placate the administration by
dialing back some policies, such as efforts to consider the impact of
climate change on the banking system, that the administration clearly
opposed.
The renewed attacks on the Fed’s independence, and Powell’s
full-throated defense, reignite what had appeared to be a dormant battle
between Trump and the chair he appointed in 2017. The subpoenas will
renew fears that the Fed's independence from day-to-day politics will be
compromised, which could undermine global investors' confidence in U.S.
Treasury securities.
“We expect the dollar, bonds and stocks to all fall in Monday trading in
a sell-America trade similar to that in April last year at the peak of
the tariff shock and earlier threat to Powell’s position as Fed chair,”
Krishna Guha, an analyst at Evercore ISI, an investment bank, wrote in a
note to clients.
“We are stunned by this deeply disturbing development which came out of
the blue after a period in which tensions between Trump and the Fed
seemed to be contained,” Guha added.
In a brief interview with NBC News Sunday, Trump insisted he didn’t know
about the investigation into Powell. When asked if the investigation is
intended to pressure Powell on rates, Trump said, “No. I wouldn’t even
think of doing it that way.”
Powell's term as chair ends in May, and Trump administration officials
have signaled that he could name a potential replacement this month.
Trump has also sought to fire Fed governor Lisa Cook, an unprecedented
step, though she has sued to keep her job and courts have ruled she can
remain in her seat while the case plays out. The Supreme Court will hear
arguments in that case Jan. 21.
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At the Senate Banking Committee hearing in June, Chairman Tim Scott,
a Republican from South Carolina, said the Fed's building renovation
included “rooftop terraces, custom elevators that open into VIP
dining rooms, white marble finishes, and even a private art
collection.”
Powell disputed those details in his testimony, saying “there’s no
new marble. ... there are no special elevators" and added that some
of the controversial items are “not in the current plan.” In July,
Russell Vought, director of the Office of Management and Budget,
said in a letter to Powell that his testimony about changes to the
building plans “raises serious questions about the project's
compliance” with previous plans approved by a planning commission.
Still, later that month, Trump visited the building site and, while
standing next to Powell, overstated the cost of the renovation.
Later that day, Trump, speaking to reporters, downplayed any
concerns with the renovation. He said, “they have to get it done”
and added, “Look, there’s always Monday morning quarterbacks. I
don’t want to be that. I want to help them get it finished.”
When asked if it was a firing offense, Trump said, “I don’t want to
put that in this category.”
The Justice Department in a statement Sunday said it can’t comment
on any particular case, but added that Attorney General Pam Bondi
“has instructed her US Attorneys to prioritize investigating any
abuse of tax payer dollars.”
Timothy Lauer, a spokesperson for U.S. Attorney Jeanine Pirro’s
office, said they don’t comment on ongoing investigations.
With the subpoenas, Powell becomes the latest perceived adversary of
the president to face a criminal investigation by the Trump
administration's Justice Department. Trump himself has urged
prosecutions of his political opponents, obliterating institutional
guardrails for a Justice Department that for generations has taken
care to make investigative and prosecutorial decisions independent
of the White House.
The potential indictment has already drawn concern from one
Republican senator, who said he’ll oppose any future nominee to the
central bank, including any replacement for Powell, until “this
legal matter is fully resolved.”
“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,” said North Carolina Sen.
Thom Tillis, who sits on the Banking Committee, which oversees Fed
nominations. “It is now the independence and credibility of the
Department of Justice that are in question.”
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Associated Press writers Seung Min Kim, Eric Tucker, Michael
Kunzelman, and Alanna Durkin Richer contributed to this report.
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