In a stunning confrontation between the White House and the central bank, Federal Reserve Chair Jerome Powell announced on Sunday, January 11, 2026, that the Department of Justice (DOJ) has threatened him with a criminal indictment.
Powell characterized the move as a “pretext” designed to intimidate the Federal Reserve into slashing interest rates, marking the most severe crisis of central bank independence in modern U.S. history.
The Charges: “Pretext” vs. Reality
The DOJ served the Federal Reserve with grand jury subpoenas on Friday, January 9, 2026. The investigation reportedly focuses on Powell’s June 2025 Congressional testimony regarding a $2.5 billion renovation project of the Fed’s historic headquarters in Washington, D.C.
The Administration’s Allegation:
Prosecutors are investigating whether Powell made misleading statements to Congress regarding cost overruns and the scope of the renovation project.
Powell’s Defense:
In a rare and combative video statement, Powell directly linked the legal threats to his refusal to bow to the President’s economic demands.
“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.” — Jerome Powell
The Conflict: Interest Rates and Tariffs
The tension has been simmering since President Trump took office in January 2025. The administration has repeatedly demanded a 3% cut to interest rates to “fuel the economy,” while the Fed has maintained a cautious “wait-and-see” approach due to inflation risks linked to the administration’s global tariff rollout.
Key Points of Friction
- Rate Cuts: Trump has publicly called Powell “stubborn” and “not smart” for holding rates steady at 4.3% while inflation sits at roughly 2.6%.
- The “Firing” Question: While the Supreme Court suggested in 2025 that the President cannot fire a Fed Chair over policy disputes, the DOJ’s “for-cause” investigation into building costs is seen by analysts as a legal workaround to remove him.
- Credit Card Caps: Just days ago, Trump announced a unilateral 10% cap on credit card interest rates to take effect on January 20, 2026, putting further pressure on the financial system.
Market Reaction: “Sell-America” Trade
Economists warn that this breach of institutional norms could have dire consequences for global markets.
- Market Volatility: Analysts at Evercore ISI expect a “sell-America” trade on Monday, with potential drops in the dollar, bonds, and stocks.
- Treasury Confidence: The threat to the Fed’s autonomy could undermine the confidence of international investors in U.S. Treasury securities.
| Entity | Position |
| The White House | Referred all questions to the Department of Justice. |
| Dept. of Justice | Stated that AG Pam Bondi has instructed U.S. Attorneys to “prioritize abuse of taxpayer dollars.” |
| Federal Reserve | Vowed to continue setting policy based on economic data, not “political intimidation.” |
What Happens Next?
Jerome Powell’s term as Chair is set to expire in May 2026, though he has the legal right to remain on the Fed’s Board of Governors until 2028. The upcoming weeks are expected to be a legal and economic showdown:
- Grand Jury Proceedings: The DOJ may move forward with a formal indictment.
- Supreme Court Intervention: A pending case regarding the President’s power to dismiss Fed officials (Lisa Cook) is scheduled for oral arguments on January 21, 2026.
- Senate Reaction: Lawmakers on both sides of the aisle are weighing in on whether this constitutes an overreach of executive power.
