US prosecutors start probe into Fed chief Jerome Powell over HQ building costs

12th Jan 2026 07:14

(Sharecast News) - The long-running row between US President Donald Trump and Federal Reserve chief Jerome Powell escalated on Sunday when the Department of Justice opened a criminal investigation into the central banker, sending the dollar lower.

Powell said prosecutors had launched a criminal investigation into the $2.5bn renovation of the Federal Reserve's headquarters, and into his testimony about the project to the Senate banking committee in June last year.

The authoritarian president has repeatedly attacked Powell, whom he appointed in 2017, over the pace of interest rate cuts, claiming they needed to be lowered more quickly as part of a campaign to curb the central bank's independence.

However, Fed policy makers have resisted due to fears of inflation in the wake of Trump's global tariff war and a weak labour market. Rate were cut three times in the second half of 2025, but there are expected to be fewer this year.

"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," Powell said in a video message.

"I have deep respect for the rule of law and for accountability in our democracy. No one, certainly not the chair of the Federal Reserve is above the law, but this unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure."

Powell added that he had been threatened with criminal charges because the bank had set interest rates "based on our best assessment of what will serve the public, rather than following the preferences of the president".

Trump claimed he knew nothing of the investigations. "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," he told NBC News.

Powell's term as chair expires in May, and the president was already expected to appoint a successor who might be more favourable to his demands.

The dollar fell almost half a cent against sterling to $1.3440, while gold - seen as a safe haven in times of political turmoil - headed towards $4,600 an ounce.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank said: "Powell highlighted that the key issue is whether the Fed can continue setting interest rates based on economic data and evidence, or whether monetary policy will be directed by political pressure."

"I'm afraid we may be moving toward the second scenario. If the Fed becomes a political tool, with its chair replaced by a government puppet, that could further weaken appetite for the US dollar and US bonds."

Reporting by Frank Prenesti for Sharecast.com