The Trump administration and Fed Chairman Jerome Powell are locked in an open battle. And a "victory" for one side or the other could impact one of the cornerstones of American democracy: the independence of the Federal Reserve.
These are the facts: in the Italian night of January 12th the New York Times revealed that the District of Columbia Attorney's Office has initiated a criminal investigation into Jerome Powell, Chairman of the Fed, regarding the renovation of the headquarters of the US Central Bank in Washington and the possibility that Powell lied to the US Congress last summer about the scope of the project. The news was confirmed by Powell himself who – unlike in recent months, in which he responded to President Donald Trump's repeated attacks with a "professional silence" – this time responded forcefully, speaking clearly of “pretext” used by the White House to try to undermine his independence.
Over the last year, in fact, Trump has repeatedly attacked the Governor of the Fed, guilty of not cutting interest rates when and how he wanted, repeatedly threatening to fire him, something that never happened and which, in theory, the president cannot do without "just cause." And here comes the investigation into the headquarters renovation.
The investigation into the Fed's restructuring work
Renovation work of the Federal Reserve headquarters began in 2022. They were supposed to cost 2,5 billion euros and instead, according to estimates, the budget will rise to 3,1 billion, 700 million more than expected. Last July, Powell himself instructed his inspector general to examine the costs of the building expansion, and on its website, the central bank explained that the increase was due to increased expenses related, among other things, to "unforeseen circumstances."
The investigation, approved in November by Jeanine Pirro, historic ally of the president Trump and appointed by him to head the office, aims to verify whether Powell lied to Congress on the true scope of the project, with the US Department of Justice threatening legal action against him.
Powell's harsh response
But for the first time, Jerome Powell is not having it and, through a text and a video published on the Fed website, he responds with a stern face, defining the “unprecedented” investigation and saying that the renovations would only be a pretext used by Trump to put pressure on him and the Fed.
I have deep respect for the rule of law and the principle of accountability in our democracy. No one, and certainly not the chairman of the Federal Reserve, is above the law. But this unprecedented action should be seen in the broader context. of threats and constant pressure exercised by the administration” of Donald Trump, Powell says in his speech.
“This threat does not concern my testimony – he continues – It's a pretext. The threat of legal action is a consequence of the Fed's desire to fix the interest rates in the best interest of the public rather than for to accommodate the President's preferences".
Trump's reaction
Trump has denied any involvement in the investigation. “I don't know anything about it, but certainly he's not very good at the Fed and he's not very good at building buildings,” the US president said in an interview with NBC News Referring to Powell, the tycoon also claimed that the investigation had nothing to do with the latter's refusal to cut rates.
The market reaction
Concerned about the independence of the US central bank, European stock markets are all trading in the red, as well as Wall Street. Instead they are at the maximum gold and silverThe former jumped to $4.600 an ounce, with spot delivery up 1,87% at mid-day to $4.594, while silver advanced 6% to approach the $85 mark for the first time. Meanwhile, dollar is down on the main international currencies, while the yields on US government bonds are rising.
The clash between Trump and Powell
The clash between Trump and Powell It has been going on practically since the first one took office at the White House for his second term and seems destined to worsen after the opening of the investigation into the restructuring of the Fed. Over the last year the US president has repeatedly insulted the Fed's president, calling him “Stupid Jay” or “Mr too late”, openly accusing him of not knowing how to do his job for not cutting interest rates, which the central bank only began doing in September (and has since cut them three times), months later than the ECB. Powell's delay was mainly prompted by inflation data, made even more unstable by tariffs announced by Trump with April's “Liberation Day.”
Meanwhile, Trump has tried to fire another board member, Lisa Cook (the Supreme Court suspended the decision) and placed in the Fed's board of directors one of his most faithful followers, Stephen Miran. Not content, he repeatedly threatened to fire Powell himself, whose mandate expires in May 2026.
The previous
Firing a governor isn't that easy. No one has ever managed it in 110 years of history.But someone tried. It was the president. Lyndon Johnson, who in 1965 attempted to oust then-Governor William McChesney Martin. Even then, the White House disagreed with monetary policy – restrictive at the time – of the Fed. How did it end? Johnson abandoned his attempt because his lawyers advised him against proceeding.
The law that created and regulates the operation of the Federal Reserve dates back to 1913 and provides that the governors of the central bank can be removed from office only for “just cause”. And, to be clear: under no circumstances can disagreeing with the Fed's monetary policy constitute "just cause." "Just cause" means fraud, misconduct, or manifest inability to perform one's role. It's no coincidence that Trump used the word "fraud" in July in reference to the Fed's restructuring. Now comes the Department of Justice's criminal investigation. It's hard to believe the US president was unaware of it.
