Federal Reserve Renovation Mismanaged, But No Crimes Found, Watchdog Reports

The Federal Reserve’s internal watchdog concluded that the central bank broadly mismanaged an expansive building renovation project, but found no criminal violations as had been alleged by prosecutors under the Trump administration. The inspector general's report, released Wednesday, details a variety of missteps by the Fed's Board of Governors and staff that inflated the cost of the $2.4 billion renovation.

The report stated that the Board did not secure a comprehensive cost estimate at the project's outset, nor did it establish a maximum overall cost, a step that could have compelled the contractor to absorb inflation impacts. Prices escalated significantly after construction began in 2022. The IG's review found that the Board had not effectively managed and executed its contract and repeatedly deviated from its cost-management provisions.

The renovation project became a point of contention during the Trump administration's efforts to pressure the Fed to lower its key interest rate. In July 2023, then-Fed Chair Jerome Powell corrected then-President Donald Trump's cost estimates for the project during a public appearance at the construction site.

Criticism of the project also surfaced in Congress, prompting Powell to request an investigation by the inspector general, Michael Horowitz, in July 2023. Subsequently, the Justice Department under the Trump administration initiated a criminal investigation into whether Powell had committed perjury regarding his testimony about the renovation. That investigation was dropped in April after a judge quashed subpoenas issued by the U.S. attorney for the District of Columbia, Jeanine Pirro.

"At no point during our evaluation did we find reasonable grounds to believe that a violation of federal criminal law had occurred requiring a referral to the U.S. Attorney General," the IG's report stated.

Powell concluded his term as Fed chair in May but remains on the board as a governor. His current term as governor extends until January 2028. He indicated earlier this year that he would stay on the board until Pirro's investigation was concluded. His continued presence on the board has also prevented the Trump administration from appointing another member.

Following the report's release, Trump renewed his calls for Powell's resignation, stating on social media that Powell "can’t manage a Building, and he certainly shouldn’t be allowed to manage his High Interest Rate Policy."

Massachusetts Sen. Elizabeth Warren, a frequent critic of Powell and the ranking Democrat on the Senate Banking Committee, commented that the report "confirmed that Trump lapdogs U.S. Attorney Jeanine Pirro and Attorney General Todd Blanche have no basis to restart the President’s witch hunt against former Fed Chair Jerome Powell."

Federal Reserve Governor Kevin Warsh, who took office in May, welcomed the inspector general's findings. He announced that the General Services Administration, which manages federal buildings, would serve in a consulting capacity to help oversee the project. The Fed also plans to engage an independent auditor to review the project and its costs. In coordination with the GSA, the Fed will examine all project contracts and "pursue appropriate remedies," including seeking reimbursement for any paid but unperformed work.

The report detailed that construction costs for renovating two Fed buildings more than doubled, from an initial estimate of $921 million in February 2020 to $2.018 billion by December 2024. The construction is now expected to continue until December 2027, significantly past its original mid-2024 completion target.

While some aspects of the project, such as water fountains, private elevators, and marble facades, had been criticized as luxurious, the report indicated they were not primary drivers of the excessive costs. Instead, a design change in 2023, shifting from an open workspace to one with mostly closed offices, caused significant design delays and postponed the establishment of a maximum cost ceiling.

The Fed had previously attributed cost overruns to factors including post-pandemic inflation, unexpected expenses like asbestos remediation, and additional demands from review agencies. The report acknowledged these factors but emphasized that they "do not account for the effect of key project management and contract execution decisions" that effectively converted the contract into a "cost-plus reimbursement contract with a pay-as-you-go approach."