Trump allies open new front against Powell over building rehab

In recent days, administration officials and some congressional Republicans have zeroed in on the renovation project, taking issue with its rising costs, what they consider extravagant design features and Powell’s recent testimony about the construction before Congress.

“Notions that they may be engaged in excessive and inappropriate spending on a building project could feed a negative stereotype that the Fed is too far removed from the realities that most people are facing,” said Kathryn Judge, a law professor at Columbia University who studies the Fed.

That dynamic, she said, could “undermine its credibility with the broader public and potentially actually serve President Trump’s claims that what we need is a Federal Reserve who is more accountable to the president and to the people that elected him.”

White House spokesman Kush Desai said in a statement that the president “can both call out the Fed for failing to do its job by its own stated objectives and ensure that taxpayer money is not wasted on things that do not benefit the American people.”

Deutsche Bank AG strategist George Saravelos said in a note to clients Saturday that Powell’s potential dismissal was a major and underpriced risk that could trigger a selloff in the US dollar and Treasuries.

Renovation Backlash

The Fed has said its renovations of two historic buildings at its Washington headquarters are designed to reduce costs over time by consolidating its operations.

But Powell’s critics have homed in on the growing costs, along with media reports that have characterized several of the renovation’s design features as lavish.

Fed budget documents show cost estimates for the project have risen to $2.5 billion this year, compared with $1.9 billion in 2023. The project’s “construction cost estimates have continued to increase, particularly within the mechanical, electrical and plumbing trades, due to competitive bid pricing,” the Fed’s 2025 budget says.

In a July 10 letter addressed to Powell, Russ Vought, director of the White House Office of Management and Budget, criticized the project and demanded Powell provide more details.

“Instead of attempting to right the Fed’s fiscal ship, you have plowed ahead with an ostentatious overhaul of your Washington DC headquarters,” Vought said in the letter posted to social media.

In the post, Vought also asserted that Powell had “grossly mismanaged the Fed.”

Bill Pulte, director of the Federal Housing Finance Administration and a fierce critic of Powell’s position on interest rates, has similarly targeted the Fed chief over the renovations. Pulte has alleged – without providing details – that Powell lied about the specifics of the project during a June 25 Senate hearing. Pulte has asserted this would justify removing Powell “for cause” and called on Congress to investigate.

Powell’s Hint

This specific line of criticism comes as Powell has declined to answer questions about whether he will depart the central bank when his term as chair ends in May 2026. His underlying term as a governor extends into 2028. With one exception, past Fed chairs have exited when they surrender their leadership role.

Should Powell stay on, it could pose a roadblock  to Trump’s ambition to exert more influence over monetary policy once he installs a new chair.

That will already prove difficult given that interest rates are set by a majority vote of the 12-member Federal Open Market Committee. If Powell remains, he’ll deny Trump the opportunity to fill another open governor seat. It would also introduce the possibility that Powell retains more influence over the committee than its new chair, who may lack credibility among Fed officials.

The drama developing around the Fed also follows a May ruling in which the Supreme Court signaled it would likely shield the Fed in any decision that allows Trump to oust top officials at two other independent federal agencies. Although legal challenges in that case continue, the decision signaled that the removal of any Fed governor would still require cause, which has been interpreted by the courts to mean inefficiency, neglect of duty or malfeasance in office.

Trump has continued to say he won’t fire Powell but said the Fed chief should resign if the allegations that he lied to lawmakers prove true.

“What they’re trying to manufacture is some ‘cause’ not related to monetary policy disagreements,” said Scott Alvarez, a former general counsel at the Fed.

Alvarez added that he doesn’t think the statements Powell has made about the Fed’s building project rise to the level of a legal firing for cause.

Fed Pushback

Powell and the Fed have sought to counter the criticisms leveled over the renovations. On Friday, the central bank added a “Frequently Asked Questions” page about the project to its website. It describes why costs have increased and disputes some of the design features that critics have targeted.

“The Federal Reserve takes seriously the responsibility to be a good steward of public resources,” the page says.

A Fed official said that Powell had been truthful during last month’s Senate Banking Committee hearing where he discussed the project.

Powell acknowledged cost overruns for the renovations in response to Republicans’ questions, but pushed back on the notion the project is overly extravagant.

“There’s no VIP dining room, there’s no new marble,” Powell said. “There are no special elevators — there’s just, there are old elevators that have been there — there are no new water features, there’s no beehives and there’s no roof terrace gardens.”

Powell added that the project’s plans have “continued to evolve” and that some earlier features “are no longer in the plans.” He also agreed that Fed staff would brief Senate Republicans’ staff about the project. That briefing is expected to happen later this month.

Planning Commission Moves

The OMB’s Vought, in his letter to Powell, said the testimony raised  “serious questions” about whether the project is in compliance with a law governing such construction.

“Although minor deviations from approved plans may be inevitable, your testimony appears to reveal that the project is out of compliance with the approved plan with regard to major design elements,” Vought wrote.

A 2021 document from the National Capital Planning Commission – the federal agency that reviews and approves projects like the Fed’s – is the most recent, publicly available review of the full scope of the renovation. The Fed official said an external architect and engineering firm had not advised that the planned changes needed to be resubmitted to the NCPC.

Meanwhile, Trump recently appointed three White House officials to serve on the NCPC. One of them, James Blair, the White House deputy chief of staff, said recently on social media he would request a review of the project and a site visit immediately.

“At a time when the Fed is running an operating deficit, maintains high interest rates and is receiving significant public scrutiny, one has to wonder whether the so-called ‘Taj Mahal near the National Mall’ project is in the best interests of the board & the public it serves,” Blair wrote.

Judge, the Columbia professor, said it is appropriate for the White House to scrutinize the Fed’s spending to ensure accountability. But in this case, the context is relevant, she said.

“It’s very hard to believe that that is what the administration is doing, given how hard the administration has fought to get Powell to lower rates and to lower rates more quickly, and to get Powell out of office more quickly,” Judge said. “It makes the concerns about the cost of renovation look like a pretense and that’s not a healthy way to ensure ongoing credibility.”