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Jessica Mendoza (3:39)

The Justice Department's investigation into Jerome Powell centers around a building, the Federal Reserve's headquarters in Washington, D.C. the building has been under renovation for years and construction costs have ballooned over budget by hundreds of millions of dollars. Back in June, Powell was called to testify about the renovation in front of the Senate Banking Committee.

Nick Timoros (3:59)

Republican senators asked Chair Powell, what's going on here? Powell gave some defensive answers, saying, a lot of the things you've read in the press aren't accurate. We're not doing this and we're not doing that.

Jerome Powell (4:12)

Some of those are just flatly misleading. The idea of elevators, you know, it's the same elevator. It's been there since the building was built. So that's, that's a mischaracterization. And some of those are no longer in the plans. They've, you know, that's, that's.

Jessica Mendoza (4:23)

The Fed says the project has faced cost overruns in part because of unforeseen construction conditions, including more asbestos than expected and toxic contamination in the soil. After Powell testified in June, White House Budget Director Russell Vogt sent him a letter. It said that Powell's testimony was at odds with the public plans for the building.

Nick Timoros (4:44)

So he implied in this letter, basically, Powell either lied to Congress or the Fed failed to notify the relevant building authorities around Washington what they were doing with these buildings.

Jessica Mendoza (4:56)

Powell responded by defending his testimony to Congress. But the scrutiny over the renovations tracked with a broader critique of Powell's leadership. Some in the White House pointed to the cost overruns as an example of the Fed chair's incompetence. President Trump has also publicly complained that Powell was taking too long to lower interest rates.

Donald Trump (5:15)

People aren't able to buy a house because this guy is a numbskull. He keeps the rates too high.

Nick Timoros (5:21)

He's called him a bunch of names, an idiot, a moron. He calls him too late because he thinks the Fed has been too late to cut interest rates.

Donald Trump (5:29)

Too late. I call him too late, pal, because he's always too late.

Jessica Mendoza (5:33)

The Fed hadn't adjusted interest rates since the start of Trump's second term, mainly because it was concerned about the risk of inflation that could be brought on by Trump's tariff policy. Still, Trump repeatedly called for Powell to be ousted, saying he wants to replace him before Powell's term expires in May. This past July, the tension between the two men was on full Display. Powell and Trump, accompanied by members of the press, took a tour of the Federal Reserve construction site.

Nick Timoros (6:03)

You had the two men in suits and hard hats traipsing around this dusty, hot. These plywood walls. It's a very big construction site over there.

Jessica Mendoza (6:13)

The tour was awkward. At one point, Trump claimed that the renovation's price tag had swelled to $3.1 billion.

Donald Trump (6:23)

It went up a little bit or a lot. So the 2.7 is now 3.1.

Jerome Powell (6:29)

I'm not aware of that.

Donald Trump (6:30)

Yeah, it is. It just came out.

Jerome Powell (6:32)

Yeah, I haven't heard that from anybody.

Jessica Mendoza (6:35)

The Fed.

Nick Timoros (6:37)

And Powell corrected him in front of the rolling cameras, saying, no, no, Mr. President, you just added a third building. So there was a little bit of a routine, almost like, can you believe this? The President and the Fed chair, who rarely talk or hear kind of squabbling over cost issues at a construction site. Donald Trump's a builder. He knows about a lot of the things they were talking about on that tour. And so the whole issue, you know, we're watching this thinking maybe there's going to be some real fireworks at the end of it. But then at the end of the tour, Trump is asked by a reporter, well, is this a fireable offense, all of these cost overruns? And, you know, the, the White House had been building the argument that this was gross negligence. And Trump sort of dismissed it all. You know, cost overruns happen.

Donald Trump (7:23)

Look, look, there's always Monday morning quarterbacks. I don't want to be that. I want to help them get it finished.

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Jessica Mendoza (7:29)

And going.

Nick Timoros (7:30)

And then as quickly as it materialized, it all sort of faded away, and we were on to the next thing.

Jessica Mendoza (7:42)

A few months later, the Fed did decide to cut interest rates. Inflation hadn't spiked because of the tariffs, plus there were new concerns about a weakening job market.

Nick Timoros (7:51)

And Powell is the person leading the Fed to cut interest rates against growing objections from his colleagues.

Jessica Mendoza (8:03)

So these renovations were at issue over the summer, and since then, the Fed has cut interest rates. So why did the Justice Department issue these subpoenas?

Nick Timoros (8:12)

Now, that's a good question. And it's something that, you know, should come out in the fullness of time. We've seen the administration go after other enemies of the President. Jim Comey, the former FBI director, Letitia James, the prosecutor in Manhattan. So, you know, it's not like this is the first time we've seen some sort of effort by the Justice Department to investigate or take a legal action against the people that Donald Trump doesn't like.

Jessica Mendoza (8:44)

The Justice Department has gone after others in the Federal Reserve as well. After Trump said he was firing Fed Governor Lisa Cook in August, the agency opened a criminal investigation, citing alleged mortgage fraud. Cook has denied any wrongdoing. Courts have allowed her to remain in her job as she challenges her removal in federal court. As for the investigation into Powell, U.S. attorney Jeanine Pirro defended the move in a post on X on Monday night. Pirro said her office had contacted the Federal Reserve about the building renovations on multiple occasions, but were ignored. In Sunday's video, Powell candidly said what he thought the latest criminal investigation was about. He called it a pretext.

Jerome Powell (9:29)

This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress's oversight role. The Fed, through testimony and other public disclosures, made every effort to keep Congress informed about the renovation project. Those are pretexts.

Nick Timoros (9:49)

It was the first time, he said, what many people around the Fed have believed for months, which is that this isn't about building cost overruns.

Jerome Powell (9:58)

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.

Jessica Mendoza (10:11)

I mean, this might be a little bit of a tangent, but, like, how often do we see criminal investigations into projects that go over budget more broadly?

Nick Timoros (10:21)

We don't.

Jessica Mendoza (10:22)

Right.

Nick Timoros (10:22)

We don't see that. You know, this all fits with a pattern of interest rates are too high for the President's liking. And so there are other ways to put people on notice if they don't get on the team.

Jessica Mendoza (10:38)

And as you've said, you know, this is out of character for Jerome Powell. What does it tell you that Powell ultimately decided to respond to in the way that he did so directly?

Nick Timoros (10:50)

There's no longer a way to weaponize private pressure against the Fed if it's no longer private. So by telling the world here's what is happening and here's what we think about it, it allows the Fed to redefine the field on which this unprecedented clash is playing out. There have been presidents who have publicly and privately pressured Fed chairs. It's normal for President to not love when the Fed is raising interest rates or not cutting interest rates. But you have to go back to the Nixon administration to find examples of this kind of pressure being applied. And even then, I don't think Nixon did anything like this to the Fed.

Jessica Mendoza (11:38)

What the investigation means for the future of the Fed is next.

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Jerome Powell (13:02)

Public service sometimes requires standing firm in the face of threats.

Jessica Mendoza (13:07)

In Sunday's video, Fed Chair Jerome Powell made it clear that he's staying put until the end of his term.

Jerome Powell (13:13)

I will continue to do the job the Senate confirmed me to do with integrity and a commitment to serving the American people.

Nick Timoros (13:21)

There have certainly been people around the president who have hoped that if they turn up the heat enough, eventually this frog is going to jump out of the pot. Just make this as difficult as you can because you know you're sending a message to more than the current Fed chair. You're sending a message to everybody that this is, this is what you will face if you don't think very hard about giving the president what he wants. And, you know, the timing of this is also remarkable because Lisa Cook, the Fed governor who's going to be in the Supreme Court next week, her attorneys have been arguing that she's being dismissed over a pretext. And they can now point to this and say, see, look, this is what Trump actually wants. He wants to just get control of monetary policy. And the Supreme Court justices can't unsee what Powell said on Sunday night.

Jessica Mendoza (14:18)

Some allies of the president, including House Speaker Mike Johnson, have expressed support for the investigation, but it's also drawn some notable rebukes, according to people familiar with the matter. Treasury Secretary Scott Bessant called the president on Sunday night and told him that the investigation could impact markets. Besant was also worried that it could cause hurdles during the Senate confirmation process for the next Fed chair. That's already started to play out.

Nick Timoros (14:46)

On Sunday night. You had a Republican senator from North Carolina, Thom Tillis, who is retiring, and he's on the Senate Banking Committee, which is the committee that has jurisdiction over the Fed that will oversee the confirmation of the next Fed chair. He said, I will not vote on any nominee for the Fed, including the next chair, until this is behind us. My message to whatever, whoever who went.

Donald Trump (15:10)

After what I consider to be vindictive.

Nick Timoros (15:12)

Prosecution, to grow up and give the President better advice. That's important because Republicans right now have a 13 to 11 majority on the Senate Banking Committee. So if they lose one vote, you know, as long as Tillis votes no and every Democrat shows up and votes no, you no longer can refer positively a nominee out of that committee.

Jessica Mendoza (15:36)

Republican Senator Lisa Murkowski echoed Tillis call to block nominations for Powell's successor. She called the investigation, quote, nothing more than an attempted coercion. Even if a nominee did make it to the Senate floor, it would only require a handful of Republicans to block a confirmation.

Nick Timoros (15:57)

If you get four senators on the Republican side who take that position and they really stand by, could be very difficult to confirm a new Fed chair if this escalates further.

Jessica Mendoza (16:12)

And practically speaking, what's the upshot of that? If a new Fed chair isn't confirmed, does Powell continue to serve or what happen?

Nick Timoros (16:21)

I don't know. I mean, yeah, it's like we're getting into all these hypotheticals that I didn't think we were going to. You know, it's 1am Monday morning and I'm reading Congressional Research Service papers on, well, what happens when there's a vacancy? And here's the answer. You know, there have been two times in the modern Fed where the new Fed chair wasn't confirmed when the old chair's term expired. And what happened in those two scenarios? In 1948 and 1978, the outgoing chair stayed in the job and served as chair for a couple of months, a couple of weeks, but we don't know here. This is Unchartered Waters.

Jessica Mendoza (17:04)

This morning, before he departed from Michigan to give a speech on the economy, Trump responded to questions about the investigation.

Donald Trump (17:11)

So he either is incompetent or he's crooked. I don't know what he is, but he certainly doesn't do a very good job.

Jessica Mendoza (17:22)

Hanging over all this is the question of whether the Federal Reserve will continue to be able to do what it's supposed to make big economy impacting decisions without political pressure. Nick says that could be in the hands of the next Fed chair.

Nick Timoros (17:36)

If you're picked to be the Fed chair, are you willing to face the same intimidation that the current Fed chair is facing and how will you react to it? That wasn't a question that you would have expected to have been asked before this but, you know, would you fight a criminal investigation? You know, how far are you willing to go? Will you, will you conduct yourself the way Powell has? That's now going to be a focus very likely of the next confirmation hearing.

Jessica Mendoza (18:07)

I feel like you've been asked this question a lot in the last year, Nick, but could this be a step toward the end of independence for the Fed?

Nick Timoros (18:17)

Yeah. I think you're looking at more than just the loss of Fed independence. What you're looking at is the White House claiming control of monetary policy. When people talk about Fed independence. Well, what, what Fed independence? It's not in the Constitution. There's no Fed. Should be a fourth branch of government. What people are talking about is the existing branches of government agreeing to this relationship. That we should not have direct political control over monetary policy because the long run interest of the economy and the short run interest of politicians don't always sync up. And so what's at stake here isn't just the end of kind of this generic Fed independence. What's at stake is can this President have much greater control over monetary policy?

Jessica Mendoza (19:20)

That's all for today. Tuesday, January 13th. The Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by C. Ryan Barber, Josh Dawsey, Sadie Germany, Meredith McGraw and Brian Schwartz. Thanks for listening. See you tomorrow.