Trump administration ramps up pressure on central bank
Federal Reserve chair Jerome Powell is facing a criminal investigation from the Department of Justice over his June testimony to the Senate Banking Committee, a move that could raise fresh questions about the central bank’s independence and the future path of bond yields and interest rates.
The probe centers on the Fed’s multi‑year, $2.5 billion renovation of its Washington headquarters, but markets quickly focused on the politics behind it and the potential fallout for borrowing costs, including mortgages.
In a video statement, Powell said the subpoenas and threat of indictment were “unprecedented” and should be viewed against “the administration's threats and ongoing pressure.”
He argued the case is not really about construction budgets or congressional oversight. “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,” Powell said.
“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation,” he said.
“I have deep respect for the rule of law and for accountability in our democracy. No one—certainly not the chair of the Federal Reserve—is above the law. But this unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure.”
Powell, who has served under four administrations, added that he has carried out his duties “without political fear or favor, focused solely on our mandate of price stability and maximum employment,” and said he would continue to do the job the Senate confirmed him to do “with integrity and a commitment to serving the American people.”
President Trump denied any role in the investigation. “I don’t know anything about it, but he’s certainly not very good at the Fed, and he’s not very good at building buildings,” Trump said in an NBC News interview.
The president again pointed to interest rates, arguing that “rates are far too high” and that Powell had “hurt a lot of people.”
Political heat on the Fed raises questions for housing
For mortgage lenders and originators, the immediate mechanics of the criminal probe matter less than the signal it sends: an escalation in efforts to pressure the Fed over rates.
Investors traditionally prize the Fed’s distance from the White House when pricing long‑term debt. If that arm’s‑length relationship appears in doubt, term premiums on Treasurys and by extension, mortgage‑backed securities, could shift quickly, regardless of whether the policy rate ultimately goes up or down.
The criminal probe arrives just months before Powell’s term as chair is due to end in May, even though he would remain on the Board of Governors until 2028. Trump said he was interviewing three or four candidates to replace Powell, and said he would announce his pick “early” this year.
In Congress, reaction hardened fault lines around the central bank. Republican senator Thom Tillis said on X he would “oppose the confirmation of any nominee for the Fed—including the upcoming Fed Chair vacancy—until this legal matter is fully resolved.”
If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none. It is now the independence and credibility of the Department of Justice that are in question.
— Senator Thom Tillis (@SenThomTillis) January 12, 2026
I… https://t.co/wDMH6twcD5
Democratic senator Elizabeth Warren said “The Senate should not move forward with any Trump nominee for the Fed, including Fed Chair,” while Senate minority leader Chuck Schumer warned that “Trump’s assault on the Fed’s independence continues, threatening the strength and stability of our economy.”
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