Fed Watchdog Finds Mismanagement but No Crime in Headquarters Renovation

The Federal Reserve’s inspector general on Wednesday released its long-awaited review of the central bank’s headquarters renovation, concluding that the project was poorly managed but that nothing in it amounted to a crime. The report said investigators never found reasonable grounds to believe a violation of federal criminal law had occurred that would require a referral to the attorney general, and that they did not identify administrative misconduct.

The renovation of two Fed buildings at its Washington headquarters is now expected to cost about $2.4 billion, far above the budget set in 2020. Construction is not expected to be finished until December 2027.

The watchdog laid much of the blame on contracting choices. The Fed did not use a guaranteed maximum price contract, a common arrangement that would have shifted the risk of overruns to the builder, and the report said the board repeatedly strayed from its own cost-control rules. At the same time, the inspector general found that the design features the White House had singled out for criticism, such as marble, water features and a garden terrace, did not materially drive the cost increases.

The project became a political weapon last year, when President Trump and his allies accused then-Chair Jerome Powell of mismanagement while also pressing him to cut interest rates. In January, Powell disclosed that the Justice Department had opened a criminal investigation tied to the renovation and his congressional testimony about it, and he called the move politically motivated. Federal prosecutors closed that investigation in April.

Trump responded to the report by renewing his demand that Powell, who remains a member of the Fed’s Board of Governors, step down. He wrote that Powell could not manage a building and should be sued if he does not resign.

Critics of the Fed have a fair point that the report does not erase: a public institution spent roughly a billion dollars more than planned, and its own watchdog says weak oversight contributed. But the central finding undercuts the claim, repeated for more than a year, that the overruns reflected wrongdoing rather than poor project management.

The episode matters beyond the building. Kevin Warsh, who succeeded Powell as chair in May, saw his confirmation slowed until the Justice Department dropped its inquiry, because at least one Republican senator objected to the investigation. Under Warsh, the Fed’s policy committee recently raised interest rates, citing persistent inflation, a move that runs against the White House’s repeated calls for lower borrowing costs. The report’s conclusion removes one line of pressure on the central bank, though the broader dispute over its independence is far from settled.