
The Federal Reserve faces an unprecedented legal challenge as the Department of Justice initiates a criminal investigation into Chair Jerome Powell regarding cost overruns in Fed building renovations. While the administration cites a 32% budget increase to $2.5 billion and alleged discrepancies in Powell's congressional testimony about "luxury" features like rooftop gardens, the investigation appears to be a pretext for undermining central bank independence. President Trump’s long-standing grievance stems from the Fed's refusal to lower interest rates despite inflation remaining at 2.7%, above the 2% target. In response, the Fed has "Trump-proofed" its structure by reappointing regional presidents to long terms, ensuring Powell can maintain a voting role until 2028 even if removed as chair. This escalation highlights a shift toward the politicization of the Federal Reserve, threatening the historical correlation between central bank autonomy and stable inflation.
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