Federal prosecutors are investigating Federal Reserve Chair Jerome Powell, the latest escalation in a yearslong feud between President Donald Trump and the central bank leader Trump chose during his first term.

It's a move that drew condemnation from former Fed chairs, a Republican on the Senate Banking Committee and, perhaps most surprisingly, Powell himself. Powell had previously deflected questions regarding Trump's threats to fire him, along with the president's insults and demands for lower interest rates. Powell has previously called the Fed's independence a \\"matter of law.\\"

\\"The reported criminal inquiry into Federal Reserve ​Chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine that independence,\\" a ‍statement signed by former Fed chairs Janet Yellen, Ben Bernanke and Alan Greenspan said, according to Reuters.

Late Sunday, Jan. 11, after the New York Times broke news of the investigation related to the ongoing renovation of the Fed's headquarters, Powell and the Fed confirmed the report by releasing a video statement calling the investigation a \\"pretext.\\"

\\"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,\\" Powell said.

Trump denied involvement in the Department of Justice’s investigation into the Federal Reserve and told NBC News the investigation was unrelated to interest rates. The Times reported the investigation is looking into whether Powell lied to Congress about the scope of the renovations at Fed headquarters.

\\"While we do not believe this will alter the near-term course of monetary policy, it will make the next Fed Chair's job that much harder to build a consensus among the 19 members of the Federal Open Market Committee,\\" Wells Fargo economists said in a Jan. 12 report regarding the federal inquiry.

The rate-setting committee has voted to lower the target federal funds rate at its last three meetings. It currently sits at a range of 3.5% to 3.75%. Powell has repeatedly said the Fed makes policy decisions based on data, not politics. The Federal Open Market Committee, that panel that – along with Powell – votes on interest rates, next meets Jan. 27 for a two-day meeting.

More: Powell says Federal Reserve hit with DOJ subpoenas, indictment threat

The investigation adds to concerns about the central bank’s independence, concerns that have lingered since Trump began publicly criticizing Powell and attempted to fire Fed Gov. Lisa Cook last year over allegations that she committed mortgage fraud. Cook has denied the accusations and continued to serve in her position after the Supreme Court rejected Trump’s bid to immediately fire her and said it would hear oral arguments on the issue in January.

Powell’s job was also threatened last year when White House advisers alleged he either lied to Congress about the Fed’s headquarters renovation or mismanaged it. The allegations came after the project’s price tag jumped from $1.9 billion to $2.5 billion. At the time, the Fed pushed back by posting an FAQ explaining the cost increases.

The back and forth over the renovations was on full display in July, when Trump visited the construction site. It was a meeting that was at times tense, such as when Trump and Powell bickered over the price of the renovation, and at other times chummy, like when Trump patted a smiling Powell on the back while asking for lower rates.

Powell’s term as Fed chair expires in May, though he will have the option to serve out his term on the Fed’s Board of Governors which will end in 2028. Powell has not said whether he plans to stay on.

Any day, Trump could announce his appointment for the next Fed chair. White House economic adviser Kevin Hassett is seen as a front-runner among the finalists.

Hassett said on Jan. 12 he was not involved in discussions with the Justice Department and didn’t know whether Trump had approved its investigation into to the Fed.

\\"I've not talked to the Justice Department ahead of them contacting Jay and so I don't really have anything to add, other than I respect the independence of the Fed and the independence of the Justice Department, and we'll see how it goes,\\" Hassett told CNBC's \\"Squawk Box.\\"

Hassett said he hopes \\"everything turns out okay\\" for Powell, but spoke to skepticism around the renovation project.

\\"Right now, we’ve got a building that’s got like, dramatic cost overruns and plans for the buildings that look inconsistent with the testimony,\\" Hassett said, adding it \\"seems like the Justice Department has decided that they want to see what’s going on over there with this building that’s massively more expensive than any building in the history of Washington.\\"

\\"And if I were Fed chair, I would want them to do that,\\" Hassett added.

Backlash to news of the investigation came quickly.

Sen. Thom Tillis, R-North Carolina, said on Jan. 11 he will block any Trump appointees to the central bank, including a new chair, until the legal matter is resolved.

\\"If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none. It is now the independence and credibility of the Department of Justice that are in question,\\" Tillis said in a statement.

His stance will complicate Trump’s ability to replace Powell, as Tillis serves on the Senate Banking Committee, which must approve a nominee before it can reach the full Senate for a final vote. The committee is comprised of 13 Republicans and 11 Democrats.

Sen. Lisa Murkowski, R-Alaska, supported Tillis in a Jan. 12 social media post, saying he is right to block any Fed nominees until the situation is resolved.

\\"After speaking with Chair Powell this morning, it’s clear the administration’s investigation is nothing more than an attempt at coercion,\\" Murkowski said. \\"If the Department of Justice believes an investigation into Chair Powell is warranted based on project cost overruns—which are not unusual—then Congress needs to investigate the Department of Justice.\\"

She added, \\"The stakes are too high to look the other way: if the Federal Reserve loses its independence, the stability of our markets and the broader economy will suffer.\\"

Financial markets responded with a moderate sell-off on Monday morning, Jan. 12. U.S. stocks were lower, with the S&P 500 and the Nasdaq Composite Index both down 0.4% at the start of trading. The Dow Jones Industrial Average lost 0.6%.

Treasuries sold off, with the 10-year note up two basis points to about 4.193% and the 5-year up 1 basis point at about 3.77%. The U.S. dollar slipped about 0.4% against a basket of international currencies, and gold, which traders often use as a hedge against geopolitical concerns, jumped more than 2%. The VIX, which is sometimes called Wall Street’s \\"fear gauge,\\" surged nearly 10%.

\\"The announcement that the Fed was served a subpoena may initially pressure yields higher in a knee-jerk reaction,\\" wrote TD Securities rates analysts in a note out late Sunday. \\"However, Powell’s more combative tone suggesting the Fed will continue doing what they believe is right may prove encouraging to investors, preventing a significant selloff. In fact, the market may view this pushback against political interference as a positive sign for future Fed independence.\\"

Contributing: Andrea Riquier, USA TODAY

Reach Rachel Barber at rbarber@usatoday.com and follow her on X @rachelbarber_

This article originally appeared on USA TODAY: What Fed chair Jerome Powell said about DOJ investigation