DOJ Investigation into Fed Chair Powell: Jack Lew Warns of Threat to Federal Reserve Independence

Jack Lew, who served as U.S. Treasury Secretary from 2013 to 2017 and subsequently as U.S. Ambassador to Israel, appeared on CNBC’s “Squawk on the Street” on January 15, 2026, to provide expert commentary on an unprecedented development in U.S. economic governance: the Department of Justice’s criminal investigation into Federal Reserve Chair Jerome Powell [1][2][3]. The investigation, which the DOJ initiated by serving grand jury subpoenas to the Federal Reserve on January 11, 2026, centers on Powell’s testimony regarding the Fed’s headquarters renovation project, examining whether his statements accurately represented the project’s costs and decision-making processes [1][2][3].

This development represents the first criminal investigation against a sitting Federal Reserve Chair in the institution’s more than century-long history, marking a significant escalation in tensions between the central bank and the Trump administration. Powell responded with a video statement released on January 11, categorically denying any wrongdoing and characterizing the investigation as politically motivated pressure over interest rate decisions rather than a genuine matter of governmental oversight [1][4].

The severity of the situation has prompted an extraordinary display of bipartisan unity among former top economic officials. All three living former Fed chairs—Alan Greenspan, Ben Bernanke, and Janet Yellen—along with five former Treasury secretaries, issued a joint statement defending Powell and warning of the implications for institutional independence [5]. This coalition, spanning multiple decades of service under both Democratic and Republican administrations, employed strikingly strong language in their condemnation, comparing the investigation to “how monetary policy is made in emerging markets with weak institutions” [5].

The joint statement characterized the DOJ’s actions as “an unprecedented attempt to use prosecutorial attacks to undermine that independence,” signaling that the signatories view this matter not merely as a legal dispute but as a fundamental challenge to the constitutional architecture of U.S. economic governance [5]. Jack Lew’s participation in this unified response, followed by his CNBC appearance to elaborate on these concerns, reflects his unique perspective as someone who has operated at the highest levels of both Treasury and diplomatic service, providing him with acute awareness of how international markets perceive developments affecting U.S. institutional stability.

Jerome Powell’s response to the investigation has been direct and unapologetic. In his video statement, Powell explicitly framed the investigation as a test of 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” [1][4]. This characterization positions the legal battle as a constitutional struggle over institutional autonomy rather than a dispute over factual testimony about construction costs.

Powell’s political and legal position is complicated by the approaching end of his chairmanship. His term as Fed Chair expires in May 2026, at which point President Trump must decide whether to reappoint him or nominate a successor [1]. However, his term as a Fed governor extends through January 2028, meaning he cannot be easily removed from the Board of Governors even if not reappointed as chair [1]. This layered tenure structure, designed precisely to insulate Fed leadership from political pressure, creates an unusual situation where Powell could potentially remain on the Board without leading the institution.

President Trump’s public comments have added complexity to the situation. While stating he was unaware of the investigation’s details, Trump reiterated his view that “rates are far too high,” maintaining public pressure on the Fed regardless of the DOJ’s involvement [1][3]. This continuation of criticism toward monetary policy decisions underscores that the tension between the administration and the central bank predates and may have motivated the investigation itself.

Initial market reaction to the investigation has been characterized by notable divergence across asset classes, with specific sectors showing pronounced responses while major equity indices have demonstrated relative stability. The S&P 500 closed essentially flat at 6,973.28, reflecting a daily change of just +0.05%, while the Dow Jones Industrial Average showed more positive sentiment with gains of 0.71% to reach 49,550.23 [0]. The NASDAQ Composite declined slightly by 0.02% to close at 23,690.27, suggesting mixed investor sentiment across different market segments [0].

However, fixed income and commodities markets have demonstrated more pronounced reactions that warrant close monitoring. Treasury yields increased on the news, reflecting investor concerns about potential implications for monetary policy independence and future interest rate trajectories [0]. More significantly, gold—traditionally a safe-haven asset during periods of institutional uncertainty—surged to a new record price of $4,600, indicating substantial demand for protection against potential systemic risks to U.S. institutional stability [0]. This divergence between relative equity stability and significant precious metal rallies suggests that investors are carefully calibrating their exposure while maintaining defensive positioning.

The three-day trend data reveals a mixed picture, with the S&P 500 and Dow Jones showing mixed signals while the NASDAQ has trended downward [0]. This pattern suggests that market participants are still processing the implications of the investigation and have not yet reached consensus on its ultimate significance for asset valuations.

The DOJ’s criminal investigation into a sitting Fed Chair establishes a potentially troubling precedent with far-reaching consequences for the independence of regulatory and independent agencies beyond the Federal Reserve. Legal scholars and former officials have warned that prosecutorial power deployed against independent agency heads could become a template for political interference in other autonomous institutions, from the Securities and Exchange Commission to the Federal Trade Commission [2][5].

The joint statement’s explicit reference to “emerging markets with weak institutions” deliberately invokes comparisons to developing economies where central bank independence is nominal and monetary policy serves political rather than economic objectives [5]. This language reflects deep concern among experienced economic policymakers that the investigation represents not merely a legal matter but an existential challenge to the constitutional separation of powers that has underpinned U.S. economic stability for more than a century.

The constitutional framework establishing the Federal Reserve as an independent entity within the government—neither fully executive nor fully legislative—has been a deliberate design feature since the system’s 1913 creation. This structure exists specifically to insulate monetary policy decisions from the political cycle, preventing the temptation for administrations to stimulate the economy before elections at the cost of long-term inflation and financial stability. The investigation challenges this foundational premise, raising profound questions about whether institutional independence can withstand sustained political pressure in an era of expanded executive power.

While the investigation ostensibly concerns testimony about the Federal Reserve’s headquarters renovation project, the broader context suggests the renovation has become a proxy battle for larger disputes over institutional autonomy and governance. The renovation project, involving the Fed’s historic headquarters building in Washington, D.C., has been ongoing for years and involves complex decisions about historical preservation, security upgrades, and operational requirements [1][2][3]. Questions about when Powell became aware of cost overruns and his testimony regarding the renovation’s oversight structure form the specific legal focus of the investigation.

However, the intensity of the response from former officials and the symbolic significance of the investigation suggest that observers on both sides view the matter as representative of broader principles. For supporters of the investigation, it represents legitimate oversight of a government agency and its leadership. For critics, it represents the weaponization of prosecutorial power against an institution specifically designed to be insulated from such pressure. This duality means that the investigation’s ultimate resolution—whether through charges, settlement, or dismissal—will carry implications far beyond the specific facts of the renovation controversy.

The investigation occurs against a backdrop of already heightened international attention to U.S. institutional developments. Foreign central banks, international investors, and sovereign wealth managers have historically viewed the Federal Reserve’s independence as a cornerstone of dollar stability and U.S. financial market integrity. The unprecedented nature of a criminal investigation against a sitting Fed Chair, combined with the bipartisan condemnation from former officials, has drawn attention in international financial capitals and central bank headquarters worldwide.

While immediate market reactions have been contained, the long-term implications for international confidence in U.S. institutional frameworks may prove more significant. The Federal Reserve’s ability to set monetary policy based on economic fundamentals rather than political considerations has been a key factor in the dollar’s status as the world’s reserve currency. Any perceived erosion of this independence could influence foreign official holdings of U.S. Treasury securities and the pricing of risk in U.S. financial assets over time.

The most significant risk arising from the investigation is the potential long-term erosion of confidence in U.S. institutional frameworks. The joint statement from former Fed chairs and Treasury secretaries explicitly articulates this concern, warning that the investigation threatens the foundational principle of central bank independence [5]. While markets have initially absorbed the news with relative calm, the cumulative effect of repeated challenges to institutional independence—combined with international commentary and academic analysis—could gradually affect the premium investors place on U.S. assets and the dollar’s reserve currency status.

This risk is particularly acute given the precedent-setting nature of the investigation. Unlike disputes over specific policy decisions, which occur regularly between administrations and independent agencies, the deployment of criminal investigation authority against a sitting Fed Chair represents a novel escalation. Future administrations may view this precedent as a template for pressure on independent agencies, fundamentally altering the balance of power in U.S. economic governance.

A related risk concerns the Federal Reserve’s ability to conduct effective monetary policy in an environment of political uncertainty. If markets perceive that Fed decisions are subject to political pressure—whether successful or merely attempted—expectations about future policy paths may become less anchored to economic fundamentals. This could manifest in increased volatility around Fed decisions, reduced effectiveness of forward guidance, and potentially higher risk premiums in interest rate markets.

The timing of the investigation, occurring just months before Powell’s chairmanship term expires, raises questions about whether the goal is influence over policy decisions or removal of an unwelcome chair. Either outcome would send troubling signals about the reliability of U.S. monetary policy frameworks, with potential consequences for inflation expectations, term premiums in bond markets, and the calibration of risk in financial intermediation.

The extraordinary unity displayed by former Fed chairs and Treasury secretaries across partisan lines presents an opportunity to reinforce institutional norms and public understanding of central bank independence. The joint statement has received extensive media coverage and has sparked Congressional discussion about potential legislative responses, including proposals to strengthen legal protections for independent agency heads [2].

This bipartisan moment could be leveraged to build longer-term coalitions for institutional protection, potentially resulting in legislative or regulatory reforms that make similar investigations more difficult in the future. The visibility of the issue may also contribute to public education about the importance of central bank independence, creating political costs for future attempts at political interference.

For market participants, the investigation creates both risks and potential opportunities arising from elevated uncertainty. The divergence between equity stability and precious metal rallies suggests that investors are actively calibrating positions based on assessed probability of various outcomes [0]. Those who accurately anticipate the investigation’s trajectory and market reaction may find trading opportunities in affected sectors, particularly rate-sensitive areas like financials, real estate, and utilities.

The key variables to monitor include the pace of the investigation, any revelations from subpoenaed documents, Congressional reaction, and the evolution of market indicators such as Treasury yields and gold prices. The upcoming Fed rate-setting meeting scheduled for late January 2026 will be particularly significant, as investors will closely scrutinize any changes in policy guidance or communications for signs of influence from the investigation.

The DOJ’s criminal investigation into Federal Reserve Chair Jerome Powell represents an unprecedented challenge to central bank independence in U.S. history. Grand jury subpoenas were served to the Federal Reserve on January 11, 2026, focusing on Powell’s testimony regarding the agency’s headquarters renovation project [1][2][3]. Powell has denied wrongdoing and characterized the investigation as politically motivated pressure over interest rate decisions [4].

The investigation has drawn condemnation from an unprecedented coalition of all three living former Fed chairs—Alan Greenspan, Ben Bernanke, and Janet Yellen—along with five former Treasury secretaries, including Jack Lew [5]. Their joint statement compared the investigation to “how monetary policy is made in emerging markets with weak institutions,” signaling deep concern about U.S. institutional integrity [5].

Market reaction has shown relative equity stability with the S&P 500 essentially flat and the Dow Jones modestly positive, while Treasury yields rose and gold reached a record $4,600, reflecting safe-haven demand [0]. The investigation’s resolution—whether through charges, settlement, or dismissal—will carry significant implications for the precedent it establishes regarding the independence of U.S. regulatory agencies and the constitutional separation of powers in economic governance.

President Trump has stated he was unaware of the investigation’s details while maintaining criticism of Fed interest rate policy, indicating continued tension between the administration and the central bank regardless of the DOJ’s involvement [1][3]. Powell’s term as chair expires in May 2026, with his term as governor extending through January 2028, creating a complex legal and political situation depending on the investigation’s outcome.