The battle between the Federal Reserve and Trump administration prosecutors accelerated over the past few weeks amid mixed signals and mutual suspicion, according to interviews with a half-dozen figures with knowledge of the dispute.
Late last month, Federal Reserve officials grew concerned that the Justice Department was preparing a criminal case against them when they received two casually-worded emails from a prosecutor working for Jeanine Pirro, the U.S. attorney in Washington. The messages sought a meeting or phone call to discuss renovations at the central bank’s headquarters, according to three people familiar with the matter, who like most others interviewed spoke on the condition of anonymity to discuss an open investigation.
The emails, sent Dec. 19 and Dec. 29, came from Assistant U.S. Attorney Carlton Davis, a political appointee in Pirro’s office whose background includes work for House Oversight Committee Chairman James Comer (R-Kentucky), the people said.
The messages struck Fed officials as breezy in tone.
“Can we hop on a call?” one of the missives read in part.
The casual approach generated suspicions at the Fed. Chair Jerome H. Powell, who by that point had sustained months of criticism from President Donald Trump and his allies over the central bank’s handling of interest rates, retained outside counsel at the law firm Williams & Connolly. Fed officials opted not to respond to Davis, choosing to avoid informal engagement on a matter that could carry criminal implications, according to a person familiar with the decision.
That led Pirro, a former Fox News host and longtime personal friend of Trump’s, to conclude that the Fed was stonewalling and had something to hide, according to a Justice Department official familiar with the matter.
“The claim that, ‘Oh, they didn’t think it was a big deal’ is naive and almost malpractice,” said the official. “We gave them a deadline. We said the first week of January.”
The investigation centers on the Fed’s first large-scale renovation of its headquarters on the National Mall since it was built in the 1930s and whether proper cost controls are in place. Powell testified to Congress in June about the scope of a project that had ballooned to $2.5 billion in costs, up from about $1.9 billion before the coronavirus pandemic.
Trump, his aides and some congressional Republicans have sought to cast the renovation as overly luxurious and wildly over budget, claims that Powell has strenuously disputed. Fed officials have said that the economic disruptions following the pandemic triggered a jump in the price of steel, cement and other building materials.
Powell and the Fed’s defenders say the renovation claims are being used to pressure the independent central bank to lower interest rates, as Trump has called for, and potentially to bully Powell into resigning.
The emails from Davis to a Federal Reserve lawyer did not indicate the existence of a criminal investigation because prosecutors had not yet opened one, according to two people with knowledge of the matter. There was no FBI involvement when Pirro’s office opened a fact-gathering inquiry in November, and the bureau remains uninvolved, according to two other people familiar with the matter.
In the emails, Davis asked “to discuss Powell’s testimony in June, the building renovation, and the timing of some of his decisions,” a Justice Department official said. “The letter couldn’t have been nicer,” that official said. “About 10 days after that, we sent another, saying, ‘We just want to have a discussion with you.’ No response through January 8.”
“We low-keyed it. We didn’t publicize it. We did it quietly,” the official added.
The subpoenas were served the next day. They seek records or live testimony before a grand jury at the end of the month.
Powell publicly disclosed the probe Sunday evening in a video statement, saying the Fed had received subpoenas “threatening a criminal indictment.”
“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,” he said.
In a post on X, Pirro said the outreach had been benign, writing: “The word ‘indictment’ has come out of Mr. Powell’s mouth, no one else’s. None of this would have happened if they had just responded to our outreach.”
Conducting an investigation without using the FBI is an approach Pirro’s office has used on at least one previous occasion. In August, one of the prosecutors now assigned to the Fed inquiry, Steven Vandervelden, was tasked with reviewing numerous complaints that the D.C. police, under former police chief Pamela A. Smith, had been incorrectly categorizing some crimes to paint a rosier picture than the reality on the ground.
That inquiry relied on voluntary interviews with more than 50 police officers and other witnesses, as well as cooperation from the mayor’s office and the police department’s internal affairs unit, according to a seven-page report Pirro and Vandervelden issued at its conclusion. The report recommended changes to police practices while saying the classification issues did not rise to the level of criminality. No subpoenas were issued in that probe, according to a person familiar with the matter, and the report does not mention any.
But Smith announced her resignation shortly before the report was released.
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