President Donald Trump swore that he wouldn’t attempt to fire Federal Reserve Chair Jerome Powell before his term expires next spring. A new White House investigation of cost overruns at the Fed’s headquarters has reignited speculation that he just might try.
White House Budget Director Russ Vought’s probe into a yearslong, $2.5 billion renovation of the central bank’s Washington offices represents a serious escalation in the administration’s offensive against Powell. Trump and other top officials have blasted the Fed chair repeatedly over his refusal to cut interest rates. The latest broadside — which includes allegations that Powell misled Congress in testimony about the renovation — is widely viewed as a way the White House could lay a path for Trump to remove the Fed chair for cause.
“They appear to be trying to build a strong case for mismanagement and the violation of certain federal rules,” said Karen Petrou, the managing partner of Federal Financial Analytics. “All of the accusations on monetary policy are irrelevant to this. It is a straightforward administrative action.”
The Supreme Court has signaled that the president can’t summarily dismiss central bankers. But the White House’s investigation into Powell’s oversight of agency finances — rather than his monetary policy decisions — exposes him to a direct legal threat at the same time that Trump is clamoring for lower rates. The Fed is fiercely protective of its independence, and the latest assault on Powell’s leadership could put the central bank on a collision course with a president who says he wants more say in setting borrowing costs.
Wall Street would likely be roiled by any attempt to oust Powell from the Fed. Lawmakers from both parties — including frequent Powell critics like Sen. Elizabeth Warren (D-Mass.) — have cautioned that the Fed’s independence from short-term political pressures has reinforced the U.S.’s dominance in global finance. Pointing to the Fed’s ballooning construction costs as a reason for Powell’s dismissal would likely do little to quell any market turmoil.
“If President Trump goes through with this, and feels like he has enough of a case to fire Powell because of the renovation, it’s a huge deal,” said Rebecca Patterson, a senior fellow at the Council on Foreign Relations. “It’s unprecedented and it would leave investors increasingly wondering about the independence of one of the most important institutions in the world.”
Trump reiterated on Friday that he had no plans to fire Powell, but continued to hammer away at the Fed chair over interest rates. He has also said recently that Powell should “resign immediately” if it’s determined he misled Congress and has repeatedly indicated that he’d prefer to see the central bank led by someone who will lower rates.
Vought — along with the National Capital Planning Commission — is investigating the Fed chair over both his testimony and questions about whether the construction project adhered to the National Capital Planning Act. On Friday, Vought described his probe into the project to upgrade the 88-year-old headquarters as an examination of the “fundamental mismanagement of the Fed under that chairman.”
“We want to make sure we have facts as to the largesse and the extent to which it’s overrun. The plans keep changing. The testimony that he has [had] on the Hill keeps changing,” the Office of Management and Budget director said during an appearance on CNBC.
The administration’s full-court press on Powell was underscored earlier this month when Bill Pulte, the director of the Federal Housing Finance Agency, called on Congress to investigate Powell over the headquarters project, also citing his “political bias.”
A White House official granted anonymity to speak frankly about the administration’s thinking said Trump’s complaints about the Fed chair’s interest rate decisions are separate from Vought’s investigation into cost overruns.
“Our position is that the Fed’s just not doing its job [on monetary policy] in the way it’s supposed to,” they said, later adding, however: “If funds are being misspent, that’s still a dereliction of duty.”
The renovation includes upgrades to both the central bank’s headquarters and a nearby building that was purchased by the central bank, according to plans submitted to the National Capital Planning Commission. It would consolidate workspace for central bank employees so the institution can get rid of some off-site leases.
Senate Banking Chair Tim Scott and five other GOP lawmakers pressed Powell last month over both the project’s costs and allegations that it included opulent touches like a VIP dining room and rooftop beehives.
“There’s no VIP dining room,” Powell told lawmakers. “There’s no new marble. There are no special elevators. There are no new water features. There’s no beehives, and there’s no roof terrace gardens.”
The Federal Reserve Act affords the central bank board considerable leeway over its facilities, including remodels and new construction. According to the Fed, several factors drove up the cost of the project. There were changes to the original building design after review agencies were consulted. Asbestos removal, toxic contamination of soil and water table challenges were also at play.
Ironically, the project also faced higher-than-anticipated costs due to inflation — Powell’s main concern in keeping interest rates elevated.
Scott Alvarez, the Fed’s former general counsel, said it would be difficult to make a “for cause” case for Powell’s dismissal without evidence of malfeasance, criminal activity or dereliction of duty. Others noted that cost overruns are common on renovations, particularly when it comes to older buildings in historic districts. (The Fed headquarters is on the National Mall.)
Another complicating factor would be Trump’s repeated attacks on the Fed chair over interest rates. If the president were to use any of Vought’s findings — or claims that Powell had misled Congress — to attempt to dismiss the chair for cause it would likely be viewed as “obviously, totally pretextual,” said one Wall Street executive, who was granted anonymity to speak openly about the administration.
“I think the strategy is to put more pressure on Jay,” Alvarez said, referring to Powell. “Anything that makes him uncomfortable, anything that the administration can do to beat him up, I think they feel like that’s going to get him to soften his position on inflation and lower rates sooner — or get fed up and leave.”
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