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Tensions between the U.S. administration and the central bank escalated into an unprecedented constitutional crisis this past weekend. Federal Reserve Chair Jerome Powell confirmed that he has officially become the target of a criminal investigation by the U.S. Department of Justice (DOJ). The revelation shocked global financial markets on Monday, igniting deep concerns over the independence of American monetary policy.
The "Renovation Scandal" Sparking a Political Storm
According to a subpoena issued by the U.S. Attorney’s Office for the District of Columbia, the investigation centers on what appears to be an infrastructure issue: the massive renovation project of the Federal Reserve’s headquarters on Constitution Avenue.
Prosecutors allege that the project's budget has ballooned from an initially approved $1.9 billion in 2019 to nearly $2.5 billion today—an overrun of more than 30%. Investigators are currently scrutinizing whether Powell made "false or misleading statements" to Congress regarding cost controls and fund usage during his testimony before the Senate Banking Committee in June 2025.
The Federal Reserve received the grand jury subpoena on Friday, January 9, 2026. Legal experts note that while administrative probes into government officials are not uncommon, launching a criminal investigation against a sitting Federal Reserve Chair is a first in U.S. history.
Powell: It is a "Pretext" to Force Rate Cuts
Facing the threat of criminal charges, Powell chose not to remain silent. He released a strongly worded video statement on the evening of Sunday, January 11.
In his statement, Powell bluntly characterized the investigation into renovation costs as a "pretext." He asserted that the true source of the conflict lies in the White House's dissatisfaction with the Fed's interest rate policy.
"The nature of this investigation is political retaliation for the Federal Reserve’s insistence on setting interest rates based on the long-term public interest rather than the President's political preferences," Powell stated solemnly in the video. "I will not be intimidated by these threats, and I will continue to fulfill my duties until my term concludes."
White House Response and Market Turmoil
In a subsequent media interview, President Trump attempted to distance himself from the investigation, stating he "knew nothing" about the DOJ's specific actions. However, he added that Powell was "not only slow on monetary policy but also a disaster at building houses."
The event immediately triggered a violent reaction across global markets:
- Safe-Haven Assets Surge: Spot gold prices spiked in early Monday trading, breaching the historic $4,500/oz mark.
- Dollar Weakens: The U.S. Dollar Index (DXY), which tracks the greenback against a basket of currencies, fell 0.8% intraday as markets worried about the erosion of U.S. institutional credibility.
- Bond Market Volatility: The 10-year U.S. Treasury yield experienced significant fluctuations as investors reassessed the political risk of holding U.S. dollar assets.
Commentary: A Test of Rule of Law and Independence
Wall Street analysts broadly agree that the timing of the investigation is significant. Powell’s term as Chair is set to expire in May 2026, less than five months from now.
Analysts at Eurasia Group noted: "Regardless of the investigation's outcome, this marks an open challenge by executive power against the Fed's independence. If a central bank governor faces the threat of prison for not aligning with the President's desire for rate cuts, the bedrock of the U.S. dollar's status as a global reserve currency will be shaken."
Currently, the Federal Reserve has not indicated whether Powell will step aside. As the case remains in the grand jury investigation phase, the subsequent legal proceedings remain highly uncertain.
