The criminal investigation is looking into whether Powell misled the Senate about the cost overruns which have run up to around US$700 million.

Powell has rejected any suggestion of misleading lawmakers and has stated that the action is not really about concrete, steel, or cost overruns. He is not alone. Indeed, a growing view is that this increasingly looks like the most serious manifestation yet of political pressure being brought to bear on the world’s most influential central bank, at a time when its policy stance (given its reluctance to reduce interest rates by as much as the Trump administration would like) has become politically inconvenient.

Pressure on Fed independence

Pressure on the Fed is not new, but until recently it had been largely rhetorical – expressed through scathing public criticism, social media commentary, and repeated demands for much lower interest rates (with the chorus of regular calls here led by President Donald Trump).

The decision to pursue a formal inquiry into the Fed chair (even if framed around governance and procurement) represents a clear escalation. It introduces the possibility that legal and administrative mechanisms can be used to exert pressure on monetary authorities.

Nor does the inquiry into Powell sit in isolation. It follows sustained scrutiny and legal action directed at other senior Fed officials, including Governor Lisa Cook, who has faced allegations relating to mortgage disclosures. While genuine oversight is legitimate, the cumulative effect has been to place individual policymakers under pressure at a time when monetary policy outcomes are politically sensitive. This is also while the White House is seeking to make it easier for the President to fire independent government officials generally. A case currently with the Supreme Court looks potentially set to limit or overturn a landmark decision from 1935 that constrains the President’s authority to remove some executive branch officials.

Taken together, these developments suggest that Fed independence is now being tested not just rhetorically, but structurally.

Why now, when Powell is leaving anyway?

At first glance, the timing is curious. Powell’s term as Fed chair expires in May, and he has already indicated he will step down from that role.

However, his term as a Governor does not expire until 2028. While uncommon, remaining on the board after stepping down as chair is not unprecedented. Marriner Eccles, one of the most influential figures in the Fed’s history, relinquished the chairmanship in 1948 but remained a governor for several years, continuing to shape policy debates.

For Trump, that possibility may matter. Powell has become a globally recognised figure, closely associated with resisting political pressure for aggressive rate cuts. Even outside the chair, he would remain a credible and influential voice inside the Fed – one capable of shaping both internal deliberations and public expectations.

Seen through that lens, it’s possible that the renovation inquiry looks less like a governance issue and more like leverage.

The monetary-policy backdrop is critical. The Fed’s most recent projections continue to point to just one interest-rate cut this year, reflecting ongoing concern over inflation persistence. That guidance sits in sharp contrast to political demands for much faster easing.

This matters politically. Trump is under pressure (for what it is worth) in the polls, with mid-term elections approaching later this year. Living costs remain a dominant voter concern, and interest rates sit squarely at the centre of that debate. Lower borrowing costs would provide visible relief for US households through cheaper mortgages and consumer credit. They would also ease pressure on the federal budget. Interest costs on America’s US$38 trillion government debt are approaching US$1t annually, and are the third-largest line item, behind only Social Security and Medicare. Every rate cut meaningfully improves the fiscal arithmetic.

Powell’s refusal to endorse rapid easing, reinforced by the Fed’s own projections, has therefore placed him directly in the political firing line.

It is notable that the pressure has been framed around renovations rather than monetary policy itself. Direct interference with rate decisions would provoke immediate market backlash. Governance and spending issues offer a subtler and more defensible channel.

The accountability paradox

All that said, and taking the other side, independence does not mean immunity. Central banks, like any public institution, must be accountable for how they spend taxpayer money.

This episode exposes a deeper structural tension. Central banks typically do not have CEOs, yet the chair is often treated as one – accountable for operations and governance, even when authority is shared across boards and committees.

If central banks wish to defend their operational independence, they must also accept scrutiny over how public funds are used. Independence cannot be interpreted as carte blanche to expand mandates, staffing, or spending without challenge.

This is not just a US issue.

In New Zealand, whether or not there is any truth to claims that Adrian Orr’s departure as governor was partly due to a funding dispute, the Reserve Bank (RBNZ) has come under increased scrutiny from the Government. Finance Minister Nicola Willis has been vocal in calling for greater “restraint”, with the Reserve Bank’s operating budget having been cut by around 25% (to around $150m). Staffing levels and the pace of expansion of some senior salaries, have attracted political and public attention. As has building work – the RBNZ doubled the size of its Auckland office last year and committed to a $14.5m fit-out.

This is all a very public tussle. The RBNZ points out that rising costs partly reflect the bank taking on new responsibilities in prudential regulation, climate-related work, and financial stability. Willis has meanwhile countered that the RBNZ should not be expanding beyond its core remit, and should “stick to its knitting”.

The RBNZ experience highlights a broader point relevant to the US debate. Independence and accountability are not competing principles; they are complementary. Supporting central bank independence does not mean defending every operational or spending decision a central bank makes.

It is also a stark reality that the independence of central banks does not make these institutions politically immune. Anna Breman, the new Reserve Bank Governor, has also learnt this quickly after being criticised by some politicians for joining several other central bank leaders in signing a letter expressing “solidarity” with Jerome Powell.

The real question

At its core, this episode raises an uncomfortable question. Is the investigation genuinely about renovations and governance? Or is it about sending a message (to Powell and others inside the Fed) about the consequences of defying political expectations?

Central bank independence does not absolve institutions or their leaders from legitimate financial accountability or scrutiny over the use of public funds. But if legal or procedural tools are being used to influence monetary policy indirectly, or to exact retribution for policy decisions, then this represents a serious challenge to Fed independence.

That is why markets are watching so closely – and why this story matters far beyond Washington.

Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $8 billion on behalf of more than 180,000 New Zealanders.

This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.

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