Powell Testimony to Lawmakers Is Focus of High-Stakes DOJ Probe

s that the U.S. Department of Justice (DoJ) has served the Fed with grand jury subpoenas threatening a criminal indictment over his June testimony to the Senate Banking Committee about a renovation of the central bank’s headquarters. The investigation focuses on the $2.5 billion project and Powell’s statements regarding its cost and scope.

Powell called the move “unprecedented” and suggested it was politically motivated. He stated the investigation was a consequence of the Fed setting interest rates based on economic data, rather than following the preferences of U.S. President Donald Trump. “This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. Those are pretexts,” Powell said according to sources.

Three former Federal Reserve chairs—Janet Yellen, Ben Bernanke, and Alan Greenspan—along with 10 other former officials, issued a statement condemning the DOJ investigation. They warned it could undermine the Fed’s independence and cited examples from emerging markets where central bank independence had been weakened according to reports.

Why Did This Happen?

The DOJ investigation was first disclosed by the Fed in a video statement from Powell. He said the Justice Department had indicated the possibility of a criminal indictment. The move has drawn criticism from both political and economic leaders. North Carolina Senator Thom Tillis, a Republican, said he would oppose the nomination of any Fed Board member until the issue was “fully resolved.”

President Donald Trump has long criticized Powell for keeping interest rates high, arguing that lower rates are needed to support the economy and reduce government borrowing costs. He has also repeatedly called for rate cuts and has threatened to replace Powell, although analysts say such a move would trigger legal and financial market volatility.

How Did Markets React?

Financial markets initially reacted with caution. The S&P 500 was roughly flat in early trading on Monday, while U.S. Treasury bonds and the dollar saw some downward movement. Global markets were “remarkably resilient,” according to Danni Hewson, head of financial analysis at AJ Bell. Still, financial stocks slumped as investors weighed the potential effects of the investigation on policy according to financial analysis.

The market’s muted response contrasted with previous episodes where threats against the Fed’s independence had caused sharp fluctuations. However, analysts warned that if Trump managed to exert significant influence over the Fed, market volatility could increase.

What Are Analysts Watching Next?

The investigation has raised broader concerns about the independence of the U.S. central bank. Jamie Dimon, CEO of JPMorgan Chase, warned that the DOJ’s actions could backfire, potentially pushing inflation expectations higher and increasing interest rates over time. He emphasized the importance of maintaining the Fed’s independence in setting monetary policy based on economic data according to Barron's.

Jeanine Pirro, the U.S. Attorney leading the investigation, denied it was politically motivated, stating that the DOJ was simply following the law. However, critics argue that the move is part of a pattern of Trump’s administration using the legal system to pressure officials with whom he disagrees.

Analysts are closely watching how the DOJ investigation unfolds and whether it leads to a shift in Fed policy. If the Fed loses its independence, it could affect how investors view U.S. assets and lead to increased volatility in financial markets. ING Bank noted that any perceived interference with the Fed could pose substantial downside risks to the U.S. dollar according to Yahoo Finance.

The Fed’s next steps are also under scrutiny. Powell’s term as chair is set to end in May, and Trump is expected to name a replacement soon. The outcome of the DOJ investigation may influence the nomination process, as some Republican lawmakers have already signaled opposition to Trump’s potential appointees until the issue is resolved.

With the investigation ongoing, the broader implications for monetary policy and investor confidence remain uncertain. The Fed’s ability to maintain its independence and continue making decisions based on economic conditions will be critical in the coming months.