'Crossing The Rubicon': Powell Investigation Raises Questions On Fed's Independence

The difference between talk and action in politics was on full display Monday, as investors and policymakers digested the disclosure of an unprecedented criminal investigation into Federal Reserve Chairman Jerome Powell. 

The move, the latest salvo in the monthslong campaign of attacks aimed at the Fed from President Donald Trump and his allies, has been widely interpreted as a broadside to the central bank’s political independence. Trump told NBC on Sunday that he knew nothing about the investigation.

“We've never had a Fed chair attacked in this way by a sitting president, it really is crossing the Rubicon,” said Derek Tang, an economist and the CEO of LHMeyer, a Washington, D.C.-based research and advisory firm focused on Fed policy.

Jeanine Pirro, a former Fox News personality who now leads the U.S. attorney's office for Washington, D.C., approved the investigation into whether Powell lied to Congress while testifying at a hearing about renovations of Fed office buildings.

The inquiry comes as Powell has endured months of haranguing from the Trump administration over the Fed’s monetary policy, with the president unhappy with the pace of interest rate cuts. 

Powell didn’t mince words in a video response posted to the Fed website Sunday about why he felt the inquiry was going ahead. 

“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings,” Powell said, calling that a pretext to attack the Fed for not bowing to political pressure to ease rates. 

“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 description from Powell was as stark as it was rare, with the Fed chair spending the last year dodging political landmines at press conferences announcing rate decisions, including questions about the administration's attempt to oust Fed Governor Lisa Cook from the Federal Open Market Committee over fraud allegations.  

Powell’s statement also marked the moment where the U.S. central bank can no longer claim to be above the political fray, Tang said. 

“It’s difficult to put the genie back in the bottle once the country goes in this direction,” he said. “This really is a seminal moment for how our financial markets are set up. We're moving away from a system where you could just take for granted that the central bank was working in the background, independently.”

Trump nominated Powell to lead the Fed in 2017 but has lambasted the chairman since taking office for his second term last January. South Carolina Sen. Tim Scott and Bill Pulte, the director of the Federal Housing Finance Agency, accused Powell of lying to Congress about a $2.5B renovation of Fed offices last year, kicking off a firestorm that ran out of steam after the president toured the project site in July.

Pirro’s office has contacted Powell’s staff to request documents about the renovation project, and the Fed chairman said Sunday that the central bank had been served with grand jury subpoenas. 

The escalation will permanently erode faith in the central bank’s political independence, Tang said. Nonetheless, the three major stock indexes all posted gains Monday and the yield on 10-year U.S. Treasurys was flat.  

“You're not seeing a huge meltdown, people are just kind of waiting to see what actually happens — maybe that's the good news. The bad news is maybe people have already resigned themselves to the fact that we're getting a less independent central bank,” Tang said. 

Pushback on the investigation from some Republican senators may have also blunted any market shock, he said. North Carolina Sen. Thom Tillis, a critical vote on the Senate committee that oversees the central bank, said early Monday morning he would hold up any new Fed nominees until the legal matter was resolved. 

Republican Alaska Sen. Lisa Murkowski also denounced the move Monday afternoon, calling the investigation “nothing more than an attempt at coercion,” in an X post.

After speaking with Chair Powell this morning, it’s clear the administration’s investigation is nothing more than an attempt at coercion. If the Department of Justice believes an investigation into Chair Powell is warranted based on project cost overruns—which are not…

— Sen. Lisa Murkowski (@lisamurkowski) January 12, 2026

Powell’s term as chairman ends in May, but he could stay on the Fed board through 2027. The president can’t fire Fed governors without cause, and the Supreme Court is set to weigh in on whether Cook’s firing in August was legal. 

The criminal investigation makes Powell more likely to dig in his heels and stay on the FOMC through next year, but the administration may have been looking instead to send a signal to his replacement, Tang said.

“I think it’s less about Powell and more about making sure that the future chair falls in line,” he said. “How do you ensure that a chair that you nominate still acts the way you want them to after they're in office? This is one way to do that.” 

For all the bluster from the White House, the Trump administration has kept its complaints relegated to specific central bankers and not the central bank itself. The Fed may no longer be able to credibly put itself fully above the political fray, but the mechanics of the U.S. monetary system remain untouched, for now. 

There are rumblings from some corners of the administration that there’s room for reform, Tang said, a move that would substantially raise the stakes for the U.S. economy and its position in global markets. 

“If that actually starts happening, and Congress falls in line and goes ahead with it, then that could be the point of no return. I'm hopeful that there's still a way for this to blow over,” he said.