By Ryan Boyle

Many of us end our weekends with a bout of the “Sunday scaries,” a sense of dread about the workload looming in the days ahead. This week, a source of significant distress appeared in our newsfeeds Sunday night. The Federal Reserve disclosed that Chair Jerome Powell had been served with a grand jury subpoena, the first step toward a criminal indictment related to his testimony before the Senate Banking Committee.

Powell responded with a concise but resolute public statement and accompanying video. Until this point, Powell had been steadfast in not responding to any provocative statement from President Trump, across both presidential terms. In this week’s release, Powell changed his tone, calling the charges pretextual matters of political pressure.

The specific issue in question is the cost overrun for the reconstruction of the Marriner S. Eccles Building, the Fed’s Washington headquarters. The project is massive: gutting the 90-year-old structure, remediating asbestos and digging new basement levels below the foundation. All construction costs have risen in the recent inflationary cycle. These factors pushed the estimated cost up 30% to $2.5 billion.

Allegations of mismanagement of the Eccles project reached a peak last summer, as the Trump administration sought a reason to dismiss Powell for cause. The saber-rattling led to Powell and Trump donning hard hats for a tour of the construction site. Afterwards, consensus took hold that, whatever its shortcomings, the project was not cause for termination. The matter had quieted down, until this weekend.

Most observers, including Powell, were quick to recognize that the real reason for the investigation was to put pressure on Fed to cooperate with the Administration’s wish for lower interest rates.  To gain additional control over monetary policy, the White House is attempting to dismiss a sitting Governor, Lisa Cook; that case is pending with the Supreme Court.  As long as Powell and Cook stay on the board, the Fed’s independence should be secure. But even if recent legal initiatives prove unsuccessful, they could serve as a warning to others that non-compliance could raise risks.

Pushback against the investigation was rapid and bipartisan. All living former Fed chairs joined a cadre of prominent figures in a letter opposing the action; foreign central bank leaders offered their own statement of solidarity.  Members of the Senate Banking Committee immediately vowed to halt all consideration of Fed nominees until the matter is settled. With Governor Stephen Miran’s term expiring at the end of the month, and a replacement to be nominated imminently, this would be a major setback.

Sensing the mounting resistance, leaders distanced themselves from the action. President Trump claimed to be unaware of the investigation when it was announced, and the Secretary of the Treasury reported that he was not involved.  The U.S. Attorney claimed the subpoena was served only because the Fed had not responded to prior inquiries.

Powell’s term as Chair will expire in May, well before court proceedings would begin. No charges have been filed. Given the long odds on a White House takeover of the Fed, markets shrugged off the news. Trading opened Monday with fear of a bond sell-off or a broader “sell America” trade taking hold, but the day was calm.

Perhaps market participants have grown a thick skin about policy surprises. More concerningly, we may simply be unable to price the risk of a compromised central bank. Across markets and history, even in the U.S., central bank leaders who bow to political pressure will raise the risk of uncontrollable inflation. Independence seems so natural that it can be difficult to conceive of any other arrangement. But today’s independence was hard-fought, and the current administration is open to radical reforms.

The case may go nowhere, but damage from the subpoena has already been done.  Any governors nominated by Trump will be viewed with great suspicion; their commitment to the Fed’s mandate will be in question. Current Board members may assert themselves by voting in a way that pushes back against the White House’s positions. Powell’s turn as Chair ends soon, but his term as governor lasts into 2028; he just gained more reason to defer retirement.

The best remedy for the Sunday scaries is a good night’s sleep, to be well rested for whatever the week has in store. We do not expect anyone at the Fed is resting easily; neither are we.