Donald Trump takes on the Fed: Why Jerome Powell is now facing a criminal threat

US President Donald Trump has dramatically escalated its standoff with the Federal Reserve by threatening criminal action against Chair Jerome Powell, triggering a sell-off in the dollar, political backlash in Congress, and renewed fears that the independence of the world’s most influential central bank is under direct assault.

As a result of the US central bank’s independence being under threat, various asset classes reacted sharply to the development, so much so that the dollar and Wall Street fell and gold reached an all-time high. While the gold touched record highs over $4600 an ounce, also fuelled by escalating geopolitical tension around Iran.

The dollar weakened against major currencies, with the dollar index sliding 0.2 per cent in early trade. Sterling gained nearly half a cent to $1.3440, reflecting rising concerns that political interference may undermine the credibility of US monetary policy. On the other hand, the dollar also fell against risk-sensitive currencies like the Australian and New Zealand.

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The US Department of Justice has served grand jury subpoenas to the Federal Reserve, opening a criminal investigation into Powell over cost overruns linked to a $2.5-billion renovation of the Fed’s headquarters in Washington and his testimony on the project before the Senate Banking Committee last year. The move marks an extraordinary intensification of pressure on a central banker who has repeatedly resisted White House demands for aggressive interest-rate cuts.

Powell hit back forcefully, describing the criminal threat as a “pretext” designed to coerce the Fed into lowering interest rates. In a strongly worded statement, the Fed chief said the action had little to do with building renovations or congressional oversight.

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“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings,” Powell said. “Those are pretexts. 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 warned that the confrontation now raises fundamental questions about the future of US monetary policy. “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,” he said.

The investigation has triggered rare bipartisan unease on Capitol Hill. Republican Senator Thom Tillis, a member of the Senate Banking Committee, said the threatened indictment calls into question the Justice Department’s independence and credibility and warned he would oppose all Trump nominees to the Federal Reserve until the matter is resolved.

Trump, who appointed Powell as Fed chair in 2018, denied knowledge of the Justice Department’s actions but renewed his personal attacks on the central banker. “I don’t know anything about it, but he’s certainly not very good at the Fed, and he’s not very good at building buildings,” Trump told NBC News.

The confrontation comes at a critical moment. Powell’s term as chair expires in May, and Trump is widely expected to appoint a successor more willing to cut borrowing costs — a move that critics fear could politicise monetary policy at a time when inflation risks remain elevated.

The criminal inquiry has also heightened market anxiety that any future Fed leadership could be pressured to deliver politically convenient rate cuts rather than decisions grounded in economic data.

Legal experts and monetary historians have described the investigation as a watershed moment. Peter Conti-Brown, a Fed historian at the University of Pennsylvania, called it “a low point in the history of central banking in America,” warning that the move threatens the Fed’s core mandate to operate independently of political influence.

Powell, who has served under four US administrations, vowed to remain in office and continue executing his mandate. “Public service sometimes requires standing firm in the face of threats,” he said. “I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people.”

With the US Supreme Court also preparing to hear arguments in a related case involving another Fed governor, the confrontation between the White House and the Federal Reserve is now evolving into a constitutional battle over who ultimately controls the price of money, a fight with consequences far beyond America’s borders.