Trump administration turned the Fed's renovation project into a political weapon

Mint

a day ago

The Trump administration has launched an attack on Federal Reserve Chair Jerome Powell over the Fed's $2.5 billion headquarters renovation, suggesting changes to the project may give the president grounds to fire Powell for mismanagement.
Critics have ranged from President Donald Trump, who told reporters on Sunday, 'I don't know what he knows about building," to White House Deputy Chief of Staff Michael James Blair, who posted a doctored photo on Tuesday of Powell as Marie Antoinette captioned 'Jerome Antoinette." Blair now sits on National Capital Planning Commission, or NCPC, the federal committee that oversees federal planning in the region, and that says it will review the Fed renovation.
The Fed disputes any wrongdoing, and says the administration lacks legal authority over its facilities. Officials at the central bank say that it voluntarily cooperates with the NCPC but isn't legally bound by the commission's decisions.
The Federal Reserve Act, which established the Fed as the official central bank of the U.S., says that the Fed has control over its buildings. The Fed has reiterated that the project is funded through its own budget financed by interest earned on the securities it owns and fees collected for other services, not by taxpayer dollars.
Analysts seem to agree. 'An error of this kind would not be grounds for removal. If it were, then the Fed Chair could be removed for bad economic results, which would be tumultuous," said Peter Wallison, a constitutional scholar and senior fellow at the American Enterprise Institute.
The price tag of the renovation, which was first approved by the Fed in 2017 and is aimed at modernizing and upgrading the Fed's main campus, is eye-catching. The cost was initially estimated at $1.9 billion and has grown to $2.5 billion. Fed officials say the costs increased due to changes to original designs as a result of consultation with review agencies, more costly materials and labor, and unforeseen circumstances like 'more asbestos than anticipated, toxic contamination in soil, and a higher-than-expected water table."
The real fight, some claim, is over interest rates. President Trump says he wants Powell to cut rates by three percentage points and is weaponizing the renovation as potential cause for dismissal before Powell's term as chair officially ends in May 2026, they say.
Jared Bernstein, former President Joe Biden's top economic adviser, put his views bluntly. 'The pretense is complete and utter BS," he wrote in a note.
'The narrow issue of Fed renovations has been a very useful wedge issue for Republicans to grab on to," said Derek Tang of the LHMeyer research team in Washington, D.C. 'They already had an axe to grind with the Fed, and this was the perfect opening."
Trump officials are pushing the idea that the renovation violated federal planning laws, or that Powell misled Congress about it, both of which they says, could justify his dismissal 'for cause."
Trump's senior economic aides, including National Economic Council Director Kevin Hassett, Federal Housing Finance Agency Director Bill Pulte, and Office of Management and Budget Director Russell Vought, have all joined the effort. In a recent letter to Powell, Vought asked that the chair halt construction and explain whether the Fed made unauthorized changes to its renovation plan without seeking approval from the NCPC.
The NCPC, usually a low-profile federal agency tasked with providing guidance for government construction projects, is now at the center of the campaign. Last week, Trump appointed White House staff secretary and former personal attorney Will Scharf as chair of the commission. Within 24 hours, Scharf was raising concerns about the Fed's 'serious deviations from the approved plans," and saying that all federal construction must comply with the commission's process.
Trump also appointed two other White House officials, Blair and Stuart Levenbach, as commissioners on the board last week. In his first meeting as commissioner, Blair said the Fed's renovation project looked like 'Taj Mahal near the national mall."
At issue is whether the Fed made substantive changes to its 2021 renovation plans without notifying the NCPC, which signed off on the original design. Trump officials argue that Powell's congressional testimony in June, where he dismissed reports of rooftop beehives, VIP dining rooms, and ornate marble upgrades as 'inaccurate in many, many respects," may have misrepresented what was in those original plans. White House officials say that the existence of those features in early filings contradict Powell's statements.
Section 10.3 of the Federal Reserve Act gives the Fed the power 'to provide for the acquisition by the Board in its own name of such site or building in the District of Columbia as in its judgment alone shall be necessary for the purpose of providing suitable and adequate quarters for the performance of its function." It also grants the Board of Governors authority to 'maintain, enlarge, or remodel any building" and states that the Fed 'shall have sole control" over its facilities.
Powell requested a formal review of the renovation by the Fed's inspector general on Monday. The central bank also published an FAQ about the project on their website, noting that several elements, like the rooftop features, were either never implemented or were removed from the design.
Hassett, now viewed as a front-runner to replace Powell, told ABC News this weekend that the legal question of whether Trump can fire Powell for cause over these renovations is 'being looked into." Whether the White House pursues these attacks, he said, 'is going to depend a lot on the answers that we get to the questions that Russ Vought sent to the Fed."
The Supreme Court has also weighed in on Fed independence. In a recent ruling, the Court affirmed presidential power to remove heads of other independent agencies but drew a distinction around the Fed, calling it a 'uniquely structured, quasi-private entity."
Financial markets are watching the confrontation closely, and analysts warn that any attempt to fire Powell could destabilize the bond market and further weaken the dollar.
During his first term, Trump pressured the Fed through tweets and news conferences, and ultimately replaced former Chair Janet Yellen with Powell, whom he believed would be more aligned with his dovish views. This time, the approach is more calculated: stacking Federal agencies, questioning legal boundaries, building a narrative that Powell either broke planning law or misled lawmakers, and pressuring the chair to resign.
A Fed spokesperson declined to comment but directed Barron's to the many times Powell has said he fully intends to serve his term.
The Fed's reluctance to cut rates has frustrated Trump, who argues that lower interest rates would help reduce the federal deficit and stimulate growth. The Fed has kept rates steady between 4.25% and 4.50% since December, citing persistent inflation risks, some of which are tied to Trump's own tariff policies.
As the legal and political maneuvering continues, the Eccles Building remains under construction. Whether the institution it houses, an independent central bank, can withstand the pressure coming from the White House down the street, remains to be seen.