President Donald Trump’s long running clash with Federal Reserve Chair Jerome Powell has spilled into a criminal investigation, after the Justice Department served the central bank with grand jury subpoenas over Powell’s testimony about a multiyear renovation of its Washington headquarters. Powell says the move is really about pressure to cut interest rates. Trump denies ordering the probe and keeps attacking both the Fed’s policies and its costly construction project.
For people following climate and energy news, this might sound far away from melting glaciers or heat waves. Yet the outcome could ripple through green investment, building efficiency and the way the Fed deals with climate related financial risks. In short, a fight over marble and interest rates can end up shaping how easy it is to finance solar panels, electric buses or flood proof infrastructure.
What the Fed renovation is really changing
According to the Fed’s own project documents, the renovation covers two historic buildings from the 1930s that have never had a full overhaul. The plan is to remove asbestos and lead, modernize old electrical, plumbing and fire systems, and bring the structures up to current safety and accessibility standards. The central bank also says the overhaul will let it consolidate most of its Washington staff into fewer, more efficient buildings.
The design includes so called vegetated roofs, often described as green roofs, which help manage stormwater and improve building efficiency while extending the life of the roof surface. The Fed notes that similar green roofs already sit on other federal buildings, including the Departments of Justice and Interior, and that the approach is encouraged by the government’s own building guidelines.
The price tag is estimated at about two and a half billion dollars. Cost overruns, the Fed explains, come from inflation, design changes requested by planning bodies and ugly surprises on site such as more asbestos than expected and toxic soil that had to be treated. Crucially, the project is funded from the central bank’s own income rather than from congressional appropriations, which means it does not draw directly on taxpayer funds.
Trump and his allies see things differently. He has repeatedly mocked the renovation as bloated and unnecessary, at one point accusing the Fed of “building a basement into the Potomac River” and warning that the final bill could reach four billion dollars. Powell, in turn, has argued to lawmakers that no one wants to be in charge of a disruptive renovation of a historic building but that the headquarters had become unsafe and no longer fit for modern work.
Independence, interest rates and the climate connection
Powell’s statement on the subpoenas makes the larger stakes clear. He says 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 on presidential preferences. In his view the real question is whether the Fed can continue to set borrowing costs based on evidence or whether monetary policy will be steered by intimidation.
Why should climate watchers care about that. Because climate change is already reshaping inflation and growth. A growing body of research finds that more frequent heat waves, floods and droughts can push up food and energy prices, damage infrastructure and make overall inflation more volatile. Some studies conclude that climate related shocks may also lower the so called natural rate of interest, the level that keeps the economy in balance, which limits how much room central banks have to use traditional rate cuts in a crisis.
In response, central banks have begun to treat climate change as a source of financial risk. In a 2023 statement on climate risk management for large banks, Powell said the Fed has “narrow, but important, responsibilities regarding climate related financial risks” and stressed that banks must understand and manage the financial risks created by climate change, even while insisting that the Fed “is not and will not be a climate policymaker.”
Academic work suggests climate factors are already influencing US interest rate decisions. One 2024 study proposes an augmented “green Taylor rule” that explicitly adds indicators of physical and transition climate risk to the usual inflation and output measures, and finds that this climate aware version fits recent Fed behavior better than the traditional model.
What is at stake for the green transition
In everyday terms, higher interest rates make it harder for households to finance rooftop solar or insulation upgrades and for cities to borrow cheaply for sea walls, stormwater systems or wildfire defenses. If political pressure makes the Fed less willing to talk about climate risk or slower to react to climate driven shocks, banks could be left more exposed to stranded fossil fuel assets and to loans in regions facing extreme weather. That, in turn, can feed back into the cost of money for the entire low carbon transition.
For now, financial markets mostly expect the Fed to stay its course and keep rates steady in the near term. But the investigation into Powell and the open threats against the central bank’s leadership arrive at a sensitive moment, when the world needs a surge of clean energy and resilience investment. At the end of the day, the question is whether the institution that sets borrowing costs will keep acting on data and long term stability or bend toward short term political demands.
The official statement was published on the Federal Reserve’s website.
