Powell: DOJ Subpoenaed Central Bank    01/12 06:17

   Federal Reserve Chair Jerome Powell said Sunday the Department of Justice 
has served the central bank with subpoenas and threatened it with a criminal 
indictment over his testimony this summer about the Fed's building renovations.

   WASHINGTON (AP) -- Federal Reserve Chair Jerome Powell said Sunday the 
Department of Justice has served the central bank with subpoenas and threatened 
it with a criminal indictment over his testimony this summer about the Fed's 
building renovations.

   The move represents an unprecedented escalation in President Donald Trump's 
battle with the Fed, an independent agency he has repeatedly attacked for not 
cutting its key interest rate as sharply as he prefers. The renewed fight will 
likely rattle financial markets Monday and could over time escalate borrowing 
costs for mortgages and other loans.

   The subpoenas relate to Powell's testimony before the Senate Banking 
Committee in June, the Fed chair said, regarding the Fed's $2.5 billion 
renovation of two office buildings, a project that Trump has criticized as 
excessive.

   Powell on Sunday cast off what has up to this point been a restrained 
approach to Trump's criticisms and personal insults, which he has mostly 
ignored. Instead, Powell issued a video statement in which he bluntly 
characterized the threat of criminal charges as simple "pretexts" to undermine 
the Fed's independence when it comes to setting interest rates.

   "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."

   It's a sharp departure from the Fed's understated response to Trump this 
year. The central bank has attempted to placate the administration by dialing 
back some policies, such as efforts to consider the impact of climate change on 
the banking system, that the administration clearly opposed.

   The renewed attacks on the Fed's independence, and Powell's full-throated 
defense, reignite what had appeared to be a dormant battle between Trump and 
the chair he appointed in 2017. The subpoenas will renew fears that the Fed's 
independence from day-to-day politics will be compromised, which could 
undermine global investors' confidence in U.S. Treasury securities.

   "We expect the dollar, bonds and stocks to all fall in Monday trading in a 
sell-America trade similar to that in April last year at the peak of the tariff 
shock and earlier threat to Powell's position as Fed chair," Krishna Guha, an 
analyst at Evercore ISI, an investment bank, wrote in a note to clients.

   "We are stunned by this deeply disturbing development which came out of the 
blue after a period in which tensions between Trump and the Fed seemed to be 
contained," Guha added.

   In a brief interview with NBC News Sunday, Trump insisted he didn't know 
about the investigation into Powell. When asked if the investigation is 
intended to pressure Powell on rates, Trump said, "No. I wouldn't even think of 
doing it that way."

   Powell's term as chair ends in May, and Trump administration officials have 
signaled that he could name a potential replacement this month. Trump has also 
sought to fire Fed governor Lisa Cook, an unprecedented step, though she has 
sued to keep her job and courts have ruled she can remain in her seat while the 
case plays out. The Supreme Court will hear arguments in that case Jan. 21.

   At the Senate Banking Committee hearing in June, Chairman Tim Scott, a 
Republican from South Carolina, said the Fed's building renovation included 
"rooftop terraces, custom elevators that open into VIP dining rooms, white 
marble finishes, and even a private art collection."

   Powell disputed those details in his testimony, saying "there's no new 
marble. ... there are no special elevators" and added that some of the 
controversial items are "not in the current plan." In July, Russell Vought, 
director of the Office of Management and Budget, said in a letter to Powell 
that his testimony about changes to the building plans "raises serious 
questions about the project's compliance" with previous plans approved by a 
planning commission.

   Still, later that month, Trump visited the building site and, while standing 
next to Powell, overstated the cost of the renovation. Later that day, Trump, 
speaking to reporters, downplayed any concerns with the renovation. He said, 
"they have to get it done" and added, "Look, there's always Monday morning 
quarterbacks. I don't want to be that. I want to help them get it finished."

   When asked if it was a firing offense, Trump said, "I don't want to put that 
in this category."

   The Justice Department in a statement Sunday said it can't comment on any 
particular case, but added that Attorney General Pam Bondi "has instructed her 
US Attorneys to prioritize investigating any abuse of tax payer dollars."

   Timothy Lauer, a spokesperson for U.S. Attorney Jeanine Pirro's office, said 
they don't comment on ongoing investigations.

   With the subpoenas, Powell becomes the latest perceived adversary of the 
president to face a criminal investigation by the Trump administration's 
Justice Department. Trump himself has urged prosecutions of his political 
opponents, obliterating institutional guardrails for a Justice Department that 
for generations has taken care to make investigative and prosecutorial 
decisions independent of the White House.

   The potential indictment has already drawn concern from one Republican 
senator, who said he'll oppose any future nominee to the central bank, 
including any replacement for Powell, 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," said North Carolina Sen. Thom Tillis, who 
sits on the Banking Committee, which oversees Fed nominations. "It is now the 
independence and credibility of the Department of Justice that are in question."