He called the probe "unprecedented", following his refusal to lower interest rates after demands by Donald Trump.
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In a video announcing the probe, Powell said the US justice department served the agency with subpoenas and threatened a criminal indictment over testimony he gave to a Senate committee about renovations to Federal Reserve buildings.
He called the probe "unprecedented" and said he believed it was opened due to him drawing Donald Trump's ire over refusing to lower interest rates despite repeated public pressure from the president.
The Fed chair is the latest to come at odds with Trump and then face criminal investigation by the US justice department.
The BBC has contacted the justice department and the White House for comment.
"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.
"I have deep respect for the rule of law and for accountability in our democracy. No one, certainly not the chair of the Federal Reserve is above the law, but this unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure," he went on to say.
Trump said in an interview with NBC News on Sunday that he did not have any knowledge of the Justice Department's investigation into the Fed.
"I don't know anything about it, but he's certainly not very good at the Fed, and he's not very good at building buildings," he said of Powell.
The Fed is undertaking the first renovation of two buildings, the Eccles and 1951 Constitution Avenue buildings, since their construction in the 1930s.
The "overhaul and modernisation" of the buildings includes health and safety work such as the removal of asbestos and lead contamination.
The Fed has said that the renovations will reduce its costs over time. But Trump has criticised the ballooning costs of the project, arguing it will cost $3.1bn (£2.3bn),