Sadiq S BhatWashington, DC — In the US capital’s Constitution Avenue, the pale stone headquarters of the US Federal Reserve stands wrapped in scaffolding, its renovation now at the centre of a political storm.
What began as a long-planned effort to modernise an ageing building has escalated into a criminal investigation, pulling in the Justice Department, and placing Federal Reserve Chair Jerome Powell under unprecedented scrutiny.
In an extraordinary escalation, US federal prosecutors have launched a criminal investigation into Powell, accusing him of misleading Congress during sworn testimony before the Senate Banking Committee in June last year.
Costs have surged beyond initial estimates, crossing $2.5 billion, driven, the Fed says, by inflation in construction materials and labour. Critics argue that the explanation does not tell the full story.
For some observers, the investigation itself is the real issue.
David Schultz, a distinguished professor in the Department of Political Science and the Department of Legal Studies at Hamline University, sees a familiar pattern.
"Given Trump’s repeated criticism of Powell and the Department of Justice making legal claims against other critics, this looks no more than another example of the misuse of the legal process for personal harassment," Schultz tells TRT World.
The White House has weighed in.
"Look, the president has every right to criticise the Fed chair. He has a First Amendment right, just like all of you do."
"Whether or not Jerome Powell is a criminal, that's an answer the Department of Justice is going to have to find out, and it looks like they intend to find that out," White House Press Secretary Karoline Leavitt told the media on Monday.
The focus is whether Powell accurately described the scope and cost of the renovation, and whether key details were omitted or downplayed.
During that testimony, Powell framed the project as essential maintenance, necessary to keep the central bank’s headquarters functional and secure.
The Fed chair is not without critics. Republican Congresswoman Anna Paulina Luna has led calls for greater scrutiny, linking the renovation to wider concerns about federal spending at a time when inflation continues to squeeze households.
In July 2025, Luna formally submitted a referral to the Attorney General requesting a Department of Justice investigation into Powell for potential perjury and making false statements to federal officials.
Powell addressed the investigation directly on Sunday in a rare video message released by the Federal Reserve.
Warnings from economists
The Fed Chair described the move as unprecedented and defended his conduct, saying he had carried out his responsibilities without political fear or favour.
Federal Reserve's official FAQs (updated July 2025 and still current as of January 2026) describe the project as a necessary, complete overhaul of buildings not comprehensively renovated since the 1930s, an unavoidable reality of maintaining a century-old building that houses sensitive financial infrastructure.
Supporters of Powell also argue that the timing of the investigation is no coincidence.
It follows renewed tensions between the central bank and President Donald Trump, who has repeatedly criticised Powell over interest rate policy. In his January 11 video message, Powell suggested the probe was being used as a pretext to influence the Fed’s decisions.
That concern has gained traction among progressive economists, who warn that turning policy disputes into criminal inquiries risks destabilising markets.
Those warnings were sharpened on Monday when the past three heads of the Federal Reserve issued a joint statement condemning the investigation.
Janet Yellen, Ben Bernanke and Alan Greenspan, joined by other former economic policy leaders, said the inquiry resembled interference more common in emerging markets with weak institutions.
A fraught relationship
"The reported criminal inquiry into Federal Reserve Chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine that independence," the statement said.
About a dozen central bankers also voiced support for Powell in a joint statement, among them Christine Lagarde, president of the European Central Bank, which sets rates for the 21 eurozone countries, Andrew Bailey, governor of the Bank of England, Tiff Macklem, governor of the Bank of Canada, and Chang Yong Rhee, governor of the Bank of Korea.
Trump, meanwhile, told The New York Times that he has decided who he wants to replace Powell as Fed chair, with an announcement expected soon.
Kevin Hassett, a former White House economic adviser under Trump, is widely seen as a frontrunner.
Trump’s relationship with Powell has long been fraught. Despite appointing him in 2018, Trump repeatedly criticised the Fed chair for raising interest rates, accusing the central bank of choking off growth.
Powell resisted those pressures, becoming a symbol of institutional independence for some in Washington.
Growing public scrutiny
Financial markets are already reacting. On January 12, S&P futures dipped by about half a per cent, reflecting investor unease over the prospect of institutional conflict at a time when interest rate cuts are under intense debate.
For taxpayers, the controversy cuts through the politics. It raises basic questions about transparency and accountability in public spending.
Peter Navarro, a senior counsellor to Trump, told US media on Monday, "We know he made false statements."
"The only question is whether he was aware and did it with malice," he said.
The unfolding investigation, set against a backdrop of political tension and market uncertainty, also underscores the broader patterns of scrutiny and pressure that Powell now faces.
"The case is consistent with this administration’s mode of operation and dealings in business," Schultz tells TRT World.
The outcome of this latest case tests whether the world’s most powerful central bank can remain insulated from the forces pressing in around it.
