Trump Administration Pressures Fed Over $2.5 Billion Renovation

The Trump administration has escalated its pressure on the Federal Reserve, focusing on a $2.5 billion renovation project at the Fed's headquarters. The administration has accused Federal Reserve Chair Jerome Powell of either misleading Congress or mismanaging the renovation, which has seen significant cost overruns and allegations of luxury upgrades. This move is seen by some as an attempt to influence Powell's resignation or to extract policy changes, particularly regarding interest rate cuts ahead of the 2026 election.

The administration's criticism centers on the ballooning expenses for the renovation of three Fed office buildings overlooking the National Mall in Washington. A letter sent by Trump’s budget director Russell Vought suggested that Powell either made false statements to lawmakers or failed to comply with key capital-area building regulations. This was followed by a briefing where Vought and newly appointed White House advisers on the National Capital Planning Commission indicated that Powell’s testimony regarding cost overruns and luxury features in the redesign would face rigorous scrutiny. One of those advisers, Deputy Chief of Staff James Blair, expressed a keen interest in investigating compliance issues related to the Fed’s construction filings.

The allegations come as Trump continues to pressure Powell to lower interest rates, aiming to reduce the government’s borrowing costs. However, under current law, Fed officials cannot be removed over policy disputes—only “for cause,” which typically means misconduct or negligence. By questioning Powell’s statements to Congress and the Fed’s project management, the administration appears to be building a case for such a dismissal. Blair, when asked whether findings could lead to Powell’s removal, hinted at public concern if Powell had lied, while Vought declined to address whether the administration would pursue dismissal proceedings.

In response, the Fed posted a detailed defense on its website, explaining that cost increases stemmed from unforeseen construction issues, including asbestos, contaminated soil, and a high water table. The Fed maintained that Powell had been truthful in his congressional testimony and that design changes did not trigger a requirement to refile plans. Fed scholars have called the administration’s campaign an overt political tactic, with Peter Conti-Brown of the University of Pennsylvania describing it as a dangerous step toward manufacturing a legal justification for Powell’s removal.

The situation recalls the Nixon administration’s efforts in 1972 to undermine then-Fed Chair Arthur Burns by leaking misleading stories to the press. The aim then, as now, was to push the Fed toward easier money policies ahead of an election. Some Trump economic advisers, including Treasury Secretary Scott Bessent, have publicly defended Powell and the Fed’s independence. However, others have explored legal routes for his removal, seeing Fed resistance to rate cuts as a political obstacle.

The Fed’s building project, approved in 2017, includes the retrofit of two historic buildings and was prompted by aging infrastructure and modern security needs. Its scale and cost mirror other federal construction projects in the region. Powell himself acknowledged the political awkwardness of such projects, emphasizing that the work was necessary and board-approved.

Despite the pressure campaign, the Fed is unlikely to cut rates at its next meeting. However, Powell has left the door open to a rate reduction later this year, should inflation remain subdued or the labor market weaken. Trump’s broader goal of lower borrowing costs to offset debt from his tax cuts clashes with central bank orthodoxy, which prioritizes inflation control over fiscal accommodation. Experts warn that compromising Fed independence could damage global confidence in the U.S. dollar and financial stability.

As the political battle intensifies, markets are watching closely for signs of a deeper institutional crisis. The administration's actions suggest a concerted effort to influence the Fed's policies, raising concerns about the independence of the central bank and the potential for political interference in monetary decisions. The outcome of this dispute could have far-reaching implications for the U.S. economy and global financial markets.