Trump-era DOJ probe of Powell sparks Capitol Hill clash over Fed independence
On Capitol Hill, a long-simmering fight over the Federal Reserve’s independence burst into the open this week as two senior Democrats demanded an investigation into the Trump-era Justice Department’s criminal probe of Fed Chair Jerome Powell.
In a sharply worded letter to House Judiciary Chairman Jim Jordan, Representatives Jamie Raskin of Maryland and Jared Moskowitz of Florida urged the panel to examine what they described as a “blatant abuse” of prosecutorial power aimed at pressuring Powell on interest rates.
“We demand that you exercise your authority as Chairman of our Committee to open an investigation into this blatant abuse of DOJ’s prosecutorial power,”
the lawmakers wrote, according to the letter, which was circulated widely on social media.
For Raskin and Moskowitz, the Trump-era inquiry was not a dispute over line items in a construction budget, but a direct challenge to the Fed’s ability to set policy without political interference.
“Blatant attempt to bully the Board”
The criminal probe, opened during the Trump administration, focuses on Powell’s June 2025 testimony before the Senate Banking Committee about cost overruns and renovations at the Federal Reserve’s historic headquarters in Washington, D.C.
Federal prosecutors sent grand jury subpoenas to the Fed after what the Justice Department said were “multiple” unanswered requests for information about the renovation project.
Raskin and Moskowitz argue that the focus on construction costs is a smokescreen.
In their letter, they describe the investigation as
“a flagrant attempt by the President to bully and intimidate the Board into setting interest rates not based on evidence, economic conditions, or the public interest but instead based on the President’s own whims.”
Powell, who typically avoids public political fights, has gone further than most of his predecessors likely would have.
In a rare video statement, the Fed chair said
“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.”
He urged the public to view the probe
“in the broader context of the administration’s threats and ongoing pressure”
over interest rate decisions.
Mounting pressure from the White House
During his presidency, Donald Trump repeatedly and publicly attacked Powell, demanding faster and deeper rate cuts and accusing the central bank of holding back growth.
At various points, Trump floated rate cuts of up to two full percentage points and mocked Powell as
“not very good at the Fed,”
while his economic aides complained that U.S. borrowing costs were
“amongst the highest interest rates on earth.”
The former president has denied ordering or directing the Justice Department to investigate the Fed chair. But his denials have often been paired with reminders of his long-running grievances about interest rates and the Fed’s decisions.
People familiar with market thinking say that, for investors, the distinction between explicit presidential orders and a constant climate of pressure is subtle at best.
“What markets hear is that the most powerful elected official in the country openly wants a compliant central bank,”
said one New York-based bond strategist.
“Once prosecutors get involved with a sitting Fed chair, that line between politics and policy starts to blur.”
Global central bankers close ranks
An unprecedented show of support
The Powell investigation produced something almost unheard of: a coordinated, public show of support from other central banks.
Heads of 10 major central banks and international institutions issued a joint statement affirming that
“the independence of central banks is a cornerstone of price, financial and economic stability”
and insisting Powell had
“served with integrity”
and displayed an
“unwavering commitment to the public interest.”
Several former Fed chairs also weighed in. Janet Yellen, Ben Bernanke and Alan Greenspan — who together helped steer U.S. monetary policy for more than three decades — condemned the probe as the sort of move more commonly associated with fragile democracies than with the United States.
They warned that
“this is how monetary policy is made in emerging markets with weak institutions,”
adding that such interference can carry
“highly negative consequences for inflation and the functioning of their economies.”
The intervention underscored just how far outside recent U.S. practice many veterans of the institution believe the Trump-era investigation to be.
Bipartisan alarm over DOJ’s role
Concern about the probe is not limited to Democrats.
Republican Senator Thom Tillis of North Carolina has complained that
“it is now the independence and credibility of the Department of Justice that are in question.”
Senator Lisa Murkowski of Alaska has gone further, arguing that
“it’s clear the administration’s investigation is nothing more than an attempt at coercion.”
Murkowski has said that if the Justice Department truly believes building cost overruns alone justify a criminal inquiry into Powell’s testimony, then Congress
“needs to investigate the Department of Justice.”
Their comments suggest that even within Trump’s own party, some lawmakers see a dangerous precedent in turning federal prosecutors on a sitting Fed chair over what, on paper, is a dispute about renovation budgets.
At the same time, legal analysts note that the public record is still thin. The contents of the grand jury subpoenas have not been made public, nor has the full transcript of Powell’s June 2025 testimony been laid out against the specific criminal statutes at issue.
One former federal prosecutor put it this way:
“On the surface, the case looks like weaponisation, but without the actual charging theory, we’re still inferring motives from partial facts and public rhetoric.”
Markets weigh a new political risk premium
Gold at a record, yields edge higher
Financial markets have reacted with a mix of anxiety and restraint.
Gold prices jumped to a record high shortly after Powell disclosed the subpoenas, a move many traders linked to worries about long-term inflation and political interference in monetary policy. The yield on the 10-year Treasury note edged up to about 4.19%, suggesting a modest repricing of both term risk and political risk.
Equities were more muted. The S&P 500 opened lower but later recovered to finish slightly higher on the day. Futures markets continued to price in roughly 95% odds that the Fed would leave its main policy rate unchanged at 3.5% to 3.75% at its late-January meeting.
For large asset managers, the episode has forced an uncomfortable addition to their models: a political risk premium tied not just to elections or fiscal policy, but to the basic question of whether the Fed can act independently.
“If investors believe central bankers are setting rates under the shadow of prosecutors, they will demand more compensation for risk,”
said a portfolio manager at a major U.S. pension fund.
“That can mean higher bond yields, wider credit spreads, and a weaker dollar over time.”
The deeper fear is that markets will no longer be able to assume that interest rates purely reflect economic data and the Fed’s mandate to pursue stable prices and maximum employment.
Instead, investors may have to factor in a more political set of variables: presidential anger, legal threats and the prospect of dueling investigations on Capitol Hill.
Congressional endgame still unclear
Raskin and Moskowitz now want Chairman Jordan to turn the spotlight on the Justice Department itself.
They have framed the Powell probe as
“a systematic assault on the independence of our central bank”
and urged Republicans to join what they cast as a defense of institutional checks and balances rather than a purely partisan fight.
So far, Jordan has not indicated whether he plans to hold hearings or subpoena former Justice Department officials involved in the case. Within the GOP, there is visible tension between lawmakers determined to protect Trump and those wary of normalizing criminal scrutiny of future Fed chairs.
Some Republican senators have already hinted they might block future Fed nominees if they view the central bank as compromised or the Justice Department as overreaching — a warning that institutional gridlock could linger well beyond the Powell episode.
As one former Fed official put it,
“The stakes go far beyond any one chair. Once you show that a president can drag a central banker toward a grand jury, every future rate decision will be seen through that lens.”
As Raskin, Moskowitz and their allies press for a formal House inquiry, markets and policymakers are left with a stark question: if the world’s most important central bank can no longer rely on sturdy political firewalls at home, how long will investors keep treating U.S. assets as the ultimate safe haven?
