Luke Vargas

U.S.

prosecutors have launched an investigation into Fed Chair Jerome Powell, threatening a criminal indictment over his testimony last year concerning the bank's building renovation project.

We report the investigation is being run out of Washington's U.S.

Attorney's Office, overseen by close ally of the president, Jeanine Pirro, and concerns the Fed's spending records.

Trump last month threatened a lawsuit against Powell, alleging incompetence over the renovation of two historic buildings that's been hit by cost overruns.

In a video posted by the Federal Reserve, Powell denied any wrongdoing and called the renovation project pretext for an attack on the central bank's independence.

Powell said potential criminal prosecution wouldn't affect his ability to serve out his term as Fed chair, which ends May 15th.

But that doesn't mean investors will be ignoring these developments, as Journal of Finance editor Alex Frangos is here to discuss.

Alex, you've seen Powell's comments.

Many have.

Alex, we've still got a few hours until markets open, but I'm assuming we're seeing a reaction.

What are you hearing?

You're turning our attention to the distant future, which is helpful.

But we do have a Fed meeting later this month and two more, assuming Powell serves out his term till May 15th.

I mean, how does this change the context heading into those meetings?

And you mentioned earlier the negative market reaction we've seen heading into trading today.

That's relevant because President Trump had wavered in the past about whether to dismiss Powell before.

He did this in his first term and then again last spring.

And then he backed off.

We report because of suggestions from his advisors, it would have a negative market impact.