Trump allies and officials fear blowback from Powell probe

Among those alarmed about potential fallout was Treasury Secretary Scott Bessent, who called Trump Sunday night and told him that the investigation could cause several issues for the administration, according to people familiar with the matter. Bessent was worried about an impact on financial markets and hurdles during the Senate confirmation process for whomever the president selects to be the next Fed chairman once Powell’s term ends in May, the people said.

Bessent’s prediction proved prescient. Late Sunday, after the probe became public, Sen. Thom Tillis (R., N.C.) said he would oppose any Fed nominee put forward by Trump “until this legal matter is fully resolved." Tillis, who sits on the Senate Banking Committee, could block a nominee from making it to a full floor vote by siding with Democrats in opposition, given the narrow split in the panel.

Even if a nominee did make it to the Senate floor, Tillis would only need a handful of other Republicans to join him and Democrats to block a nominee. Republicans have a 53-47 majority in the chamber.

Several other Senate Republicans on Monday expressed concern with the Justice Department probe, including Senate Majority Leader John Thune (R., S.D.), who said he hoped the dispute was resolved quickly.

Others worried that the fight would rattle markets and raise borrowing costs. The litigation will “cause interest rates to go up, not down. We need this like we need a hole in the head," said Sen. John Kennedy (R., La.), a member of the banking panel.

Some aides in the White House were concerned about the market reaction to the probe, according to administration officials, one of whom said the White House wasn’t made aware of the investigation in advance. Stocks recovered after early losses.

A Trump adviser described the immediate fallout from the investigation as a “huge cluster."

Axios earlier reported Bessent’s call to Trump.

In recent weeks, one administration official who lobbied for a probe was Bill Pulte, head of the Federal Housing Finance Agency, according to people familiar with the matter. Pulte flew to Palm Beach on Air Force One with Trump Friday night.

Pulte had previously argued in favor of opening an investigation into Powell in private conversations with the president and senior administration officials, the people said.

When asked by Bloomberg TV about reporting that he was an instigator in the probe, Pulte said the Justice Department and its investigation into Powell is outside of his purview. “I don’t know anything about it," he said.

Pulte declined to comment late Sunday.

White House Communications Director Steven Cheung said Pulte is an important adviser to Trump and has the full confidence of the president.

Washington’s U.S. attorney Jeanine Pirro, whose office is running the investigation, defended the probe, saying on X Monday night: “This office makes decisions based on the merits, nothing more and nothing less."

Powell has been on the Fed’s board since 2012. Trump tapped him to serve as Fed chair beginning in 2018. His term as chair ends in May but he holds a separate term as a governor that would permit him to stay on the board until early 2028. A senior GOP lawmaker, who spoke with administration officials Monday, said some Republican lawmakers plan to propose to the Trump team a deal with Powell: He leaves, and the case will be dropped.

Trump has publicly attacked Powell for resisting his demands to cut interest rates and has criticized the $2.5 billion renovations of the Federal Reserve. Trump told NBC News that he didn’t know anything about the investigation, but added Powell is “certainly not very good at the Fed, and he’s not very good at building buildings."

Powell spent the weekend huddled with senior advisers over how to respond to the prospect of an active criminal investigation of the Fed. Officials had to weigh whether to stay quiet and prepare a legal defense privately or to go public and reframe the fight on his own terms.

Several of Powell’s policy-setting colleagues weren’t aware of the subpoenas or of the decision to directly challenge the Trump administration until the Fed chair released his extraordinary video statement on Sunday night, according to people familiar with the matter.

Powell’s work over the years of courting lawmakers appeared to pay an immediate dividend when Tillis announced shortly after the statement that he wouldn’t support filling any Fed vacancies until the legal investigation had been resolved.

After speaking with Powell on Monday morning, Sen. Lisa Murkowski (R., Alaska) said she agreed with Tillis’s decision to block “any Federal Reserve nominees until this is resolved." Rep. French Hill (R., Ark.), chairman of the House Financial Services Committee, also sided with Powell in a statement on Monday, calling the Fed chair “a person of the highest integrity."

One person familiar with the matter said the subpoenas appear designed to collect large amounts of information relating to the costs and scope of the Fed’s building renovation, which could take time for the Fed to produce and for prosecutors to review.

White House advisers last year implied that Powell might not have provided honest testimony during a congressional hearing in June when he challenged press accounts about certain architectural flourishes and amenities in the $2.5 billion renovation of two historic office buildings. The subpoenas could be designed to produce information that might highlight inconsistencies in Powell’s representations to the Senate Banking Committee.

Powell and other Fed officials have provided lawmakers and the White House with further details to support his initial testimony to Congress.

Write to Brian Schwartz at brian.schwartz@wsj.com, Meridith McGraw at Meridith.McGraw@WSJ.com, Josh Dawsey at Joshua.Dawsey@WSJ.com and Nick Timiraos at Nick.Timiraos@wsj.com