Fed Rate Cuts Under Fire: DOJ Probe Adds Pressure on Powell Amid Policy Clash with Trump

The friction between the White House and the Federal Reserve has escalated dramatically. Federal Reserve Chair Jerome Powell has publicly claimed that a criminal investigation by the Department of Justice stems from the administration’s dissatisfaction with the central bank’s monetary policy direction. Powell characterized the probe as “unprecedented” and accused the administration of using unrelated issues as a smokescreen for what he views as political pressure.

The Investigation and the Headquarters Renovation Question

The DOJ issued grand jury subpoenas to the Federal Reserve on Friday, specifically concerning testimony Powell delivered to the Senate regarding a $2.5 billion renovation project at the Fed’s Washington headquarters. Rather than viewing this as a legitimate inquiry, Powell interpreted it as retaliation for the Fed’s independent rate-setting decisions. He stressed that the central bank had maintained transparency with Congress throughout the renovation process through regular testimony and public reporting.

Powell framed the investigation within a larger pattern of sustained administrative pressure and veiled threats. He emphasized that claims related to the headquarters project are being weaponized to undermine the Fed’s credibility and autonomy.

Recent Monetary Policy Decisions

The Federal Reserve has pursued a rate-cutting trajectory in recent months. The institution implemented three rate reductions during the latter half of 2025, with the most recent cut occurring in December, establishing the benchmark rate at 3.50% to 3.75%. Additionally, the Fed terminated its quantitative tightening initiative on December 1, 2025, signaling a shift toward monetary accommodation.

These moves have been precisely the opposite of what President Trump has publicly advocated for since his return to office in January 2025. Trump has repeatedly urged more aggressive rate cuts and has even raised the possibility of dismissing Powell from his position.

Trump Distances Himself, Succession Planning Underway

Interestingly, when questioned during an NBC interview, Trump denied having knowledge of any DOJ investigation targeting the Federal Reserve. He also refuted any connection between the investigation and interest-rate policy disputes, a claim that stands at odds with Powell’s public statements.

With Powell’s mandate concluding in May 2026, Trump is actively advancing his succession agenda. Fox News reported that Trump has narrowed his candidate pool to four contenders: Kevin Hassett, Kevin Warsh, Christopher Waller, and Rick Rieder. Hassett, a veteran conservative economist and Trump economic adviser, is considered the frontrunner. Trump has indicated that the new Fed chair must be someone who supports significantly lower interest rates.

The convergence of the DOJ investigation, ongoing policy disagreements, and the imminent leadership transition underscores the deepening tension between the executive branch and the central bank’s independence.