The US Department of Justice has opened a criminal investigation into the Federal Reserve chair, Jerome Powell, as Donald Trump’s White House escalates its campaign against the central bank’s independence.In a video posted on Sunday, a typically reticent Powell took the extraordinary step of denouncing the investigation as punishment for not setting interest rates in accordance with the US president’s wishes.This is just the latest development in a long string of White House attacks against the Fed.Here’s what we know about what’s going on.As chair of the Fed, Powell has been the public face of the central bank since 2018.

Trump initially appointed him for a four-year term, and then Biden reappointed him in 2022.His term as chair will end in May.Powell alone does not set interest rates.He is part of the Federal Open Market Committee (FOMC), the 12-member board that votes eight times a year on any changes to interest rates.Though Powell is just one vote out of 12, he has enormous sway as the most influential voice on the state of the US economy.

The justice department said the investigation is over potential “abuse of taxpayer dollars”, but it’s been pretty quiet on any specific details.Much of what we know so far comes from Powell’s video.The investigation is an escalation of attacks the White House has made before over renovations of the Fed’s Washington DC headquarters.Trump over the summer reproached Powell about the project, and its cost of $2.5bn, instead of the $1.

9bn that had originally been budgeted in 2019.Trump accused Powell of overseeing a lavish renovation, like a VIP dining room and a garden terrace.“It’s possible there’s fraud involved with the $2.5bn,” the president claimed at the time.The justice department has served the Fed with grand jury subpoenas and threatened a criminal indictment, according to Powell, related to testimony he gave in front of the Senate banking committee in June.

The testimony in question is from a regularly scheduled, semiannual update the Fed chair gives to the Senate banking committee on the state of the economy in June.In brief comments, which amounted to less than two minutes out of a two-hour session fielding questions from senators on the economy, Powell had said the renovations were needed for safety purposes on buildings that hadn’t undergone major renovations since the 1930s.“There’s no VIP dining room, there’s no new marble,” he told senators.“We took down the old marble, we’re putting it back up.There are no special elevators, there’s just the old elevators.

”Powell hit back on Sunday with a remarkable defense of the Fed’s independence, and explicitly laid out the White House’s unprecedented campaign to lower interest rates.The investigation amounts to an “unprecedented action [that] should be seen in the broader context of the administration’s threats and ongoing pressure”, he declared.“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,” said Powell.

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president.”Powell affirmed his commitment to public service and “standing firm in the face of threats”.It’s the first time that Powell, who spent much of the last year declining to publicly address Trump’s criticism, has so directly responded to the White House’s aggression.The president has often publicly mocked the Fed chair in social media posts for being a “very stupid person”, and accused him of damaging the US economy.A statement signed by every living former Fed chair condemned the investigation, and warned that similar political attacks on independent central banks have led to unstable economies and higher costs of living.

“It has no place in the United States whose greatest strength is the rule of law, which is at the foundation of our economic success,” the statement said,The move also rattled a few Republican senators, whose support Trump will need to get his Fed chair nominee approved, before Powell’s term ends in May,Thom Tillis, a Republican senator from North Carolina, said he will oppose whoever Trump nominates to replace Powell as Fed chair “until this legal matter is fully resolved”,The Alaska senator Lisa Murkowski called the investigation “coercion” and warned that the economy would suffer if the Fed loses its independence,Economists have also sounded the alarm, warning that Trump’s attempts to influence the Fed could risk plunging the US into a period of 1970s-style inflation, and trigger a global backlash in financial markets.

Trump has long wanted the Fed to lower interest rates, claiming that cutting rates would save “$1tn a year” and spur economic activity.Powell, and many of his colleagues at the Fed, take a more cautious approach.Fed economists often refer to the central bank’s “dual mandate”: mitigating price increases, while keeping unemployment low.Cutting rates too quickly risks higher inflation in the long term, but rates that are too high can stagnate the labor market.These complexities appear to matter little to the White House, which has relentlessly pushed for significantly lower rates since Trump re-entered office.

Last spring, Trump privately told advisers that he wanted to fire Powell,He backtracked when markets responded poorly to the news, but he hasn’t let up on his pressure campaign,After Trump spent weeks trying to cause a stir around the Fed’s renovations, the White House instead went on to fire the Fed governor Lisa Cook, a voting member of the rate-setting FOMC who was appointed by Joe Biden,The supreme court temporarily reinstated Cook and will hear arguments over her firing next week,The Federal Reserve’s independence was a key part of its structure when it was created by Congress in 1913.

Economists have long studied the importance of having a central bank that is unswayed by politics,Markets depend on the central bank to be a steady presence in the economy, making decisions based on economic data, instead of the whims of politicians,The only say the president and Congress have on the Fed is who gets to sit on its board, with terms lasting 14 years,And while the president can fire other leaders within the executive branch, removing someone from the Fed’s board has to be “for cause” – an argument at the heart of the upcoming supreme court trial on Cook’s firing,In his statement, Powell implied the White House is waging an existential fight against the Fed.

“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,” he said.