Watch: Powell pledges to stand firm against “unprecedented” threats to bring charges against the Trump administration

WASHINGTON (AP) — Federal Reserve Chairman Jerome Powell said Sunday that the Justice Department has sent the central bank subpoenas and threatened him with criminal indictment over his testimony this summer about renovations to the Federal Reserve building.

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The move represents an unprecedented escalation in President Donald Trump’s battle with the Federal Reserve, an independent agency he has repeatedly attacked for not cutting its key interest rate as sharply as he would prefer. The renewed battle is likely to rock financial markets on Monday and could, over time, lead to escalating borrowing costs for mortgages and other loans.

Read more: The Justice Department’s investigation into Powell sparked backlash and support for the Fed’s independence

The Fed chief said the subpoenas relate to Powell’s testimony before the Senate Banking Committee in June, regarding the Fed’s $2.5 billion renovation of two office buildings, a project Trump criticized as excessive.

Powell on Sunday abandoned what has so far been a restrained approach to Trump’s criticism and personal insults, which he has mostly ignored. Instead, Powell issued a video statement in which he bluntly described the threat of criminal charges as simple “pretexts” to undermine the Fed’s independence when it comes to setting interest rates.

“The threat of criminal charges is the result of the Fed setting interest rates based on our best assessment of what will serve the public, rather than following the president’s preferences,” Powell said. “It’s about whether the Fed will be able to continue setting interest rates based on evidence and economic conditions — or whether monetary policy will be guided by political pressure or fear.”

Read more: Why does the Fed’s independence from the White House matter?

It’s a sharp departure from the Fed’s modest response to Trump this year. The central bank has tried to appease the administration by rolling back some policies, such as efforts to consider the impact of climate change on the banking system, which the administration clearly opposed.

The renewed attacks on the Fed’s independence, and Powell’s full defense, are reigniting what appeared to be a dormant battle between Trump and the president he appointed in 2017. The subpoenas will renew fears that the Fed’s independence from day-to-day politics is at risk, which could undermine global investors’ confidence in US Treasuries.

“We expect the dollar, bonds and stocks to all fall in Monday trading in a sell-off trade for America similar to the one that occurred in April of last year at the height of the tariff shock and the earlier threat to Powell’s position as Fed chair,” Krishna Guha, an analyst at Evercore ISI, an investment bank, wrote in a note to clients.

“We are stunned by this very disturbing development that comes so suddenly after a period when tensions between Trump and the Fed appeared to be contained,” Guha added.

In a brief interview with NBC News on Sunday, Trump insisted that he had no knowledge of the investigation into Powell. When asked if the investigation was aimed at pressuring Powell on interest rates, Trump said: “No. I wouldn’t even consider doing it that way.”

Powell’s term as head of the bank ends in May, and Trump administration officials have indicated he may name a potential replacement this month. Trump also sought to fire Federal Reserve Governor Lisa Cook, an unprecedented move, even though she sued to keep her job and the courts ruled she could remain in her seat while the case was heard. The Supreme Court is scheduled to hear arguments in this case on January 21.

At a Senate Banking Committee hearing in June, Chairman Tim Scott, a Republican from South Carolina, said the renovation of the Fed building includes “rooftop terraces, custom elevators that open to VIP dining rooms, white marble finishes, and even a private art collection.”

Powell disputed these details in his testimony, saying, “There is no new marble…no private elevators,” and added that some controversial provisions “are not in the current plan.” In July, Russell Vaught, director of the Office of Management and Budget, said in a letter to Powell that his testimony about changes to the building plans “raises serious questions about the project’s compliance” with previous plans approved by the Planning Commission.

However, later that month, Trump visited the construction site and, while standing next to Powell, overestimated the cost of the renovation. Later that day, speaking to reporters, Trump downplayed any concerns about the renewal process. “They’ve got to get it done,” he said, adding, “Look, there’s always the quarterbacks on Monday morning. I don’t want to be that. I want to help them get it done.”

When asked if this was a shooting, Trump said: “I don’t want to put that in that category.”

The Justice Department said in a statement on Sunday that it could not comment on any specific case, but added that Attorney General Pam Bondi “has instructed U.S. attorneys to prioritize investigating any misuse of taxpayer funds.”

Timothy Lauer, a spokesman for U.S. Attorney Jeanine Pirro’s office, said they do not comment on ongoing investigations.

With the subpoenas, Powell becomes the latest potential opponent of the president to face a criminal investigation by the Trump administration’s Justice Department. Trump himself has pushed to prosecute his political opponents, eliminating institutional barriers to a Justice Department that for generations had made investigative and prosecutorial decisions independently of the White House.

The potential indictment has already alarmed one Republican senator, who said he would oppose any future central bank nominee, including any replacement for Powell, until “this legal matter is fully resolved.”

“If there was any remaining doubt as to whether advisers within the Trump administration were actively pushing to end the Fed’s independence, there should be none now,” said North Carolina Sen. Thom Tillis, a member of the Banking Committee that oversees Fed nominations. “The independence and credibility of the Department of Justice are now in question.”

Associated Press writers Seung-Min Kim, Eric Tucker, Michael Konzelman and Alana Dworkin Richer contributed to this report.