Federal Reserve chair Jerome Powell says the US Department of Justice has served the central bank with subpoenas and threatened it with a criminal indictment over his testimony about the Fed’s building renovations.

The move represents a major escalation in US President Donald Trump’s battle with the Fed, an independent agency he has repeatedly attacked for not cutting its key interest rate as quickly as Trump wants.

Powell said the subpoena related to his testimony before the Senate Banking Committee in June about the Fed’s $US2.5 billion ($A3.7 billion) renovation of two office buildings, a project that Trump criticised as excessive.

In a video statement on Monday (Australian time), Powell said the threat of criminal charges were “pretexts” to undermine the Fed’s independence in setting interest rates.

“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,” he said.

Powell and Trump also famously exchanged words over the renovations when Trump visited the unfinished building project back in July.

Trump, who was once a real estate developer, said he would fire people for cost overruns.

“Do you expect any more additional cost overruns?” Trump said.

“Don’t expect them,” Powell said.

The US Justice Department refused to comment on the case, but said Attorney General Pam Bondi “has instructed her US attorneys to prioritise investigating any abuse of taxpayer dollars”.

The potential indictment has already drawn concern from one Republican senator, who said he would oppose any future nominee to the central bank, including any replacement for Powell, until “this legal matter is fully 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,” North Carolina Senator Thom Tillis said.

He sits on the Banking Committee, which oversees Fed nominations.

“It is now the independence and credibility of the Department of Justice that are in question.”

-AAP