Why is the Fed Chair Facing a Criminal Investigation?
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What prompted the criminal investigation into Jerome Powell?
On Sunday night, my colleague Nick Timros was at home, going about his usual routine.
I had been washing the dishes and thinking I was going to be putting my kids to bed.
Always an exciting time in Washington these days. But then, in the middle of Sunday night football, around 7.30 p.m. Eastern, a two-minute video appeared on the Federal Reserve's X account.
This was an extraordinary video.
It featured Fed Chair Jerome Powell in a gray suit in front of an American flag.
Good evening. On Friday, the Department of Justice served the Federal Reserve with grand jury subpoenas, threatening a criminal indictment.
In a stunning move, Powell publicly broke the news that the Federal Reserve was under criminal investigation by the Justice Department, something that's never happened before.
This unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure.
Powell was very direct. He said this action was a political move on the part of the Trump administration, intended to intimidate the Fed into lowering interest rates.
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.
On Sunday night, President Trump said he didn't know anything about the subpoenas. As you were watching the video, what was going through your mind?
You know, Powell has been very composed and measured. This is a man who chooses his words extremely carefully. Watching that video, you couldn't help but recognize that a line had been crossed, that we were no longer in this environment of kind of tiptoeing around what's going on. It was direct, blunt, explicit, in a way that nothing he had said before had approached.
Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Tuesday, January 13th. Coming up on the show, the Fed chair fights back.
The Justice Department's investigation into Jerome Powell centers around a building, the Federal Reserve's headquarters in Washington, D.C., The building has been under renovation for years, and construction costs have ballooned over budget by hundreds of millions of dollars. Back in June, Powell was called to testify about the renovation in front of the Senate Banking Committee.
Republican senators asked Chair Powell, what's going on here? Powell gave some defensive answers saying, you know, a lot of the things you've read in the press aren't accurate. We're not doing this and we're not doing that.
Some of those are just flatly misleading. The idea of elevators, you know, it's the same elevator. It's been there since the building was built. So that's a mischaracterization. And some of those are no longer in the plans. You know, that's...
The Fed says the project has faced cost overruns, in part because of unforeseen construction conditions, including more asbestos than expected and toxic contamination in the soil. After Powell testified in June, White House Budget Director Russell Vogt sent him a letter. It said that Powell's testimony was at odds with the public plans for the building.
So he implied in this letter, basically Powell either lied to Congress or the Fed failed to notify the relevant building authorities around Washington what they were doing with these buildings.
Powell responded by defending his testimony to Congress.
How did Powell respond to the investigation's implications?
But the scrutiny over the renovations tracked with a broader critique of Powell's leadership. Some in the White House pointed to the cost overruns as an example of the Fed chair's incompetence. President Trump has also publicly complained that Powell was taking too long to lower interest rates.
People aren't able to buy a house because this guy is a numbskull.
He keeps the rates too high. He's called him a bunch of names, an idiot, a moron. He calls him too late because he thinks the Fed has been too late to cut interest rates.
Too late. I call him too late, pal, because he's always too late.
The Fed hadn't adjusted interest rates since the start of Trump's second term, mainly because it was concerned about the risk of inflation that could be brought on by Trump's tariff policy.
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