For Years, Powell Avoided Fighting Trump. That’s Over.
In a dramatic escalation of tensions that have simmered since President Donald Trump’s return to the White House, Federal Reserve Chair Jerome Powell has shifted from cautious restraint to open defiance. On Sunday evening, January 11, 2026, Powell released a rare video statement addressing an unprecedented criminal investigation launched by the U.S. Department of Justice (DOJ) into his congressional testimony regarding the Federal Reserve’s headquarters renovation project. This marks a clear turning point: after years of absorbing public attacks and pressure from Trump without direct confrontation, Powell is now pushing back forcefully, framing the probe as a politically motivated attempt to undermine the central bank’s independence.
The conflict between Trump and Powell dates back to Trump’s first term, when the president repeatedly criticized the Fed chair for not cutting interest rates aggressively enough to stimulate economic growth and boost stock markets. Trump, who nominated Powell as chair in 2017, has long viewed monetary policy through a political lens, often labeling Powell as “incompetent” or “too late.” In his second term, these criticisms intensified, with Trump demanding deeper and faster rate reductions amid concerns over inflation, trade policies, and overall economic performance.
The Fed, under Powell’s leadership, maintained its independence, raising rates in 2022 and 2023 to combat post-pandemic inflation before beginning a series of three cuts in late 2025. Despite the pressure, Powell and the institution emphasized data-driven decisions focused on price stability and maximum employment, avoiding escalation even as Trump threatened to fire him, sue him for “gross incompetence,” and attempted to remove other Fed officials, such as Governor Lisa Cook (whose case is pending before the Supreme Court).
The flashpoint emerged around the Fed’s multi-year renovation of its historic headquarters buildings in Washington, D.C. The project, initially estimated at lower figures, has ballooned to approximately $2.5 billion due to unforeseen costs, delays, and scope changes. Trump and his allies, including figures like OMB Director Russ Vought, seized on the overruns, accusing the Fed of mismanagement and luxury spending. During a July 2025 tour of the site, Trump publicly clashed with Powell, claiming costs had reached $3.1 billion and pinning blame on the chair. Powell pushed back at the time, clarifying that the higher figure incorrectly included unrelated buildings.
In June 2025, Powell testified before the Senate Banking Committee, explaining the collaborative nature of the project with various agencies and the reasons for cost adjustments. The Fed has maintained that the renovations will ultimately reduce long-term operating expenses by consolidating operations. However, Republican critics, including Rep. Anna Paulina Luna, referred the matter to the DOJ, alleging potential perjury or false statements.
The investigation broke into public view on January 11, 2026, when the DOJ served the Fed with grand jury subpoenas threatening criminal indictment tied to Powell’s testimony. Powell confirmed the probe in his video message and written statement, calling it “unprecedented” and insisting that “no one—certainly not the chair of the Federal Reserve—is above the law.” He directly rejected the premise, stating the action was not truly about congressional oversight or the renovation details. Instead, he described it as a “pretext” amid “the administration’s threats and ongoing pressure,” aimed at coercing the Fed to set interest rates according to political preferences rather than economic evidence.
This direct accusation represents a sharp departure from Powell’s previous approach of measured, institutional responses that avoided personal or partisan confrontation. For years, the Fed navigated Trump’s broadsides by sticking to protocol, occasionally accommodating peripheral demands (such as on climate or regulation) while fiercely guarding its core autonomy over monetary policy. Now, facing what many observers see as an existential threat to that independence, Powell has chosen to fight openly.
The fallout has been swift. Markets reacted with volatility, including upward pressure on longer-term Treasury yields as investors weighed the risks of a politicized Fed potentially eroding its credibility as an inflation fighter. Key Republicans, including Sen. Thom Tillis of the Senate Banking Committee, condemned the move as a “huge mistake” and vowed to block Trump Fed nominees until the matter resolves. Former Fed officials and experts have praised Powell’s stand, with some calling it a necessary defense of institutional integrity.
Powell’s term as chair expires in May 2026, though he could remain on the Board of Governors until January 2028. His forceful response suggests he may not step aside quietly, potentially limiting Trump’s ability to reshape the Fed in the near term. As the central bank prepares for its next rate-setting meeting, this clash underscores a profound test for one of America’s most important economic institutions: whether monetary policy will continue to be guided by data and expertise, or succumb to executive-branch intimidation.
The outcome remains uncertain, but one thing is clear—Jerome Powell’s era of avoidance is over. The Federal Reserve is now in direct confrontation with the president, with far-reaching implications for economic governance in the United States.
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