US Federal Reserve chairman Jerome Powell said the Department of Justice had served the central bank with subpoenas and threatened it with a criminal indictment over his testimony this summer about the Fed's building renovations.

The move represents an unprecedented escalation in President Donald Trump's battle with the Fed, an independent agency he has repeatedly attacked for not cutting its key interest rate as sharply as he prefers.

The renewed fight will likely rattle financial markets on Monday and may over time escalate borrowing costs for mortgages and other loans.

The subpoenas relate to Powell's testimony before the Senate Banking Committee in June, the Fed chair said on Sunday, regarding the Fed's US$2.5 billion renovation of two office buildings, a project that Trump has criticised as excessive.

Powell on Sunday cast off what has up to this point been a restrained approach to Trump's criticisms and personal insults, which he has mostly ignored.

Instead, Powell issued a video statement in which he bluntly characterised the threat of criminal charges as simple “pretexts” to undermine the Fed’s independence when it comes to setting interest rates.

“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," Powell said.

“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.”

It's a sharp departure from the Fed's understated response to Trump this year.

The central bank has attempted to placate the administration by dialling back some policies, such as efforts to consider the impact of climate change on the banking system, that the administration clearly opposed.

The renewed attacks on the Fed’s independence, and Powell’s full-throated defence, reignite what had appeared to be a dormant battle between Trump and the chair he appointed in 2017.

The subpoenas will renew fears that the Fed's independence from day-to-day politics will be compromised, which could undermine global investors' confidence in US Treasury securities.

“We expect the dollar, bonds and stocks to all fall in Monday trading in a sell-America trade similar to that in April last year at the peak of the tariff shock and earlier threat to Powell’s position as Fed chair,” Krishna Guha, an analyst at Evercore ISI, an investment bank, wrote in a note to clients.

“We are stunned by this deeply disturbing development which came out of the blue after a period in which tensions between Trump and the Fed seemed to be contained.”

In a brief interview with NBC News on Sunday, Trump insisted he didn’t know about the investigation into Powell.

When asked if the investigation is intended to pressure Powell on rates, Trump said, “No. I wouldn’t even think of doing it that way.”

Powell's term as chair ends in May, and Trump administration officials have signalled that he may name a potential replacement this month. (AP)