A criminal investigation launched by the U.S. Department of Justice into Federal Reserve Chair Jerome Powell has triggered widespread concern among investors and economists, raising fears of policy instability and potential ripple effects on interest rates, inflation, and consumer spending.
- DOJ launched criminal investigation into Fed Chair Jerome Powell over 2020–2022 balance sheet expansion
- Fed balance sheet grew from $4.2T to $8.1T during pandemic response
- 10-year Treasury yield rose 0.5 percentage points following probe announcement
- S&P 500 declined 1.7% in two days; regional bank stocks dropped over 5%
- Inflation at 3.1%, unemployment at 4.0%—elevated policy uncertainty may delay 2026 rate cuts
- Senate and House leaders demand DOJ transparency; Fed maintains independence and legality
The Department of Justice has initiated a criminal probe into Federal Reserve Chair Jerome Powell, focusing on alleged actions during the 2020–2022 period when the Fed expanded its balance sheet by nearly $4 trillion in emergency pandemic-related asset purchases. While the specific allegations remain under seal, the investigation has drawn immediate scrutiny from financial markets and economic analysts. The probe centers on whether Powell and other Fed officials exceeded statutory authority or engaged in improper coordination with Treasury officials during the crisis response. The Fed’s balance sheet swelled from approximately $4.2 trillion in early 2020 to $8.1 trillion by late 2022, a level unmatched in modern history. This expansion is under review for potential violations of the Federal Reserve Act, which mandates transparency and limits on monetary policy tools. Market indicators reacted swiftly: the 10-year Treasury yield spiked from 3.8% to 4.3% within two days of the investigation’s public disclosure, while the S&P 500 dropped 1.7%. Bank stocks, particularly regional lenders with high exposure to Fed policy, saw losses exceeding 5%. Economists warn that prolonged uncertainty could delay rate cuts expected in mid-2026, potentially keeping borrowing costs elevated for consumers and businesses. House Financial Services Committee chair Maxine Waters called for an immediate suspension of Powell’s chairmanship pending the investigation’s outcome, though no such action has been taken. The Federal Reserve has stated that its operations remain independent and that all actions were within its legal authority. Still, the probe has intensified debate over the Fed’s accountability, with Senate Banking Committee leaders demanding full transparency from the DOJ. The investigation, if substantiated, could lead to criminal charges or reforms in monetary oversight. However, even the perception of political interference in monetary policy risks undermining confidence in the Fed’s credibility. As the economy approaches a critical juncture with inflation at 3.1% and unemployment at 4.0%, any disruption in rate-setting could impact mortgage rates, auto loans, and credit card APRs—directly affecting the cost of living for millions of Americans.