DOJ Probe on Powell Draws Swift Backlash from Congress as Key GOP Senator Says He Won't Confirm Anyone for the Fed Until Case is Resolved

Federal Reserve Chair Jerome Powell announced on Sunday that the Department of Justice (DOJ) has served the central bank with subpoenas and threatened it with a criminal indictment. The investigation centers on Powell’s testimony before the Senate Banking Committee in June 2025 regarding the Fed’s $2.5 billion renovation project.

Powell characterized the threat of criminal charges as a "pretext" to undermine the Fed's independence when it comes to setting interest rates. He said the move is part of a broader pattern of pressure from the Trump administration, which has repeatedly criticized the Fed for not cutting interest rates as sharply as the president has demanded.

The announcement has already drawn sharp criticism from some members of Congress. Senator Thom Tillis, a Republican from North Carolina and member of the Senate Banking Committee, said he will not confirm any future nominee to the Federal Reserve, including a potential replacement for Powell, until the legal matter is fully resolved.

Why Did This Happen?

The subpoenas relate to Powell’s testimony about the Fed’s building renovation, a project that President Donald Trump has criticized as excessive. Powell disputed claims that the renovation included luxury features like custom elevators and marble finishes, stating that such details were not part of the approved plans.

The Trump administration has long sought greater influence over the Fed’s monetary policy. Trump has openly criticized the Fed for not lowering interest rates more quickly and has threatened legal action over the renovation. In July, Trump visited the renovation site and stated that the project "has to get done", despite criticism of its cost.

How Did Markets React?

The announcement is likely to have immediate effects on financial markets. Analysts anticipate a "sell-America trade" similar to what occurred last year at the height of the tariff dispute. This could lead to a sell-off in U.S. stocks, bonds, and the dollar as investors lose confidence in the stability of U.S. monetary policy according to market analysts.

Krishna Guha, an analyst at Evercore ISI, noted that the development is "deeply disturbing" and came out of the blue, despite previous tensions between the Trump administration and the Fed. Financial futures indicate that markets are already pricing in the potential fallout.

What Are Analysts Watching Next?

The independence of the Federal Reserve is a key factor in global investor confidence. If the DOJ investigation leads to an indictment of Powell or other Fed officials, it could signal a broader erosion of the central bank's autonomy.

The Fed chair’s term ends in May 2026, and Trump has already hinted at potential replacements. Trump has also sought to remove Fed Governor Lisa Cook, a move currently under Supreme Court review.

Senator Thom Tillis has criticized the DOJ for undermining the independence of the Justice Department itself, saying the probe raises questions about its credibility. Tillis has pledged to oppose any nominee to the Fed until the legal matter is resolved.

The investigation will be overseen by the U.S. Attorney’s Office for the District of Columbia, led by Jeanine Pirro, a Trump appointee and former Fox News host according to reports. No criminal charges have been filed as of now, but the issuance of subpoenas marks a significant escalation in the administration's pressure campaign against the Fed as documented.

The legal and institutional implications of the probe remain unclear. While proving criminal liability for false statements to Congress is difficult, the mere threat of legal action could influence the Fed's future policy decisions.

As the situation unfolds, investors and policymakers are watching closely for signs of how the Fed will navigate the pressures from the Trump administration and whether its independence will remain intact according to financial experts.