President Donald Trump has a new weapon to use in his campaign against perceived opponents of the Federal Reserve, but an oversight report released Wednesday found no basis for criminal charges stemming from costly renovations to the Fed’s headquarters.
Combined with separate disputes involving Governors Lisa Cook and Michael Barr, Trump’s decision to shift responsibility for headquarters spending issues to former Chairman Jerome Powell means the president could seek to remove as many as three of the Fed’s seven board members. But recent court decisions suggest any effort would face major legal hurdles.
The legal maneuver could take months to play out, and could actually have the effect of persuading targets to postpone plans to leave the Fed, as Mr. Powell has already done. President Trump’s ability to force the Fed to reverse its recent interest rate hike decisions appears limited, despite the potential systemic damage that further legal action could cause.
President Trump appears to be weighing his options for how to proceed. The Fed is scheduled to announce its latest interest rate decisions on October 28, just days before the November 3 midterm elections. The administration will have a deadline to pursue Cook’s lawsuit immediately after the vote.
Scott Alvarez, a former Federal Reserve general counsel, said any adverse action by the administration against any of the three governors could backfire on Mr. Trump.
“Everyone has an incentive to sue and stay,” Alvarez said.
Alvarez said of President Trump, “The Supreme Court said Lisa Cook can stay on while the case continues. If everyone stays on while the case continues, all he’s done is undermine his own policies.”
President Trump was furious after Wednesday’s IG report. “Mr. Powell is the worst,” the president told reporters Wednesday when asked about the findings. Mr. Powell “should not sit on the Federal Reserve Board.”
Mr. Trump appointed Mr. Powell during his first term, but his attitude toward Mr. Powell soured soon afterward.
President Trump asked Attorney General Todd Blanche to review the inspector general’s report. A spokeswoman for Jeanine Pirro, the U.S. attorney for the District of Columbia, said her office is also reviewing the report.
The Justice Department did not respond to emailed questions about its plans or how Blanche’s review differed from Pirro’s. Mr. Pirro previously oversaw the criminal investigation into Mr. Powell. The judge quashed her subpoena in the matter, saying the “primary (if not the only) purpose is to harass and pressure Mr. Powell.”
The Federal Reserve declined to comment on President Trump’s comments about Powell.
A long-awaited IG report found that the Fed’s renovation of its Washington office space was fraught with management problems that drove up construction costs by about $1 billion. However, the report found no evidence of administrative wrongdoing and said there was nothing warranting criminal prosecution.
“Personally, I don’t think the remediation report is enough for a court to fire Mr. Jay for cause,” said Scott Alvarez, a former Federal Reserve general counsel. “Although his criminal innocence has been proven, it also states that no administrative wrongdoing was found.”
The report details how bureaucratic chaos left the Fed vulnerable to overspending on a project to renovate and connect two historic federal buildings in Washington. The IG Secretariat accused the Fed of failing to enforce guaranteed price ceilings for projects, among other issues.
But this retrospective report cannot directly prove that the Fed could have saved money had it been better run. The footnote acknowledges that improved management “does not necessarily reduce overall project costs.”
Rather than blaming Mr. Powell or the governor personally for cost overruns, the company explains failures in project management, contracts, and board governance and oversight systems. The IG’s office notes that the board delegated responsibilities to staff, as is expected in large institutional construction projects.
Mr. Powell can remain at the Fed as a board member until January 2028. He said in March that he would remain in office until the legal threat was “completely and truly ended with transparency and finality.”
In June, the Supreme Court blocked President Trump’s removal of Cook over allegations that he lied on a mortgage application. The court said she had a duty to notify her of the allegations and give her an opportunity to respond, and provided guidance on what a subsequent investigation would entail.
As of August, Cook received notice and an opportunity to respond, removing one hurdle to his possible removal. The administration would need to show the court that it meets the standard of good cause, which would likely require review by the Supreme Court.
The White House has not addressed the issue publicly since Cook’s response, but Trump complained about Cook in an interview published Thursday in Time.
President Trump said new Federal Reserve Chairman Kevin Warsh has been found to have “some level of control” by the board. “Lisa is there,” he said.
For now, the Cook case is before U.S. District Judge Gia Cobb. He asked both parties to submit a joint status report by November 6 on how to proceed with the case.
Meanwhile, an external investigation into the Fed’s response to the 2023 Silicon Valley bank failure is underway. A preliminary report from research firm Sterling Advisory Group charged that the Federal Reserve’s banking regulators should have known about the risks a year before the bank failed.
The preliminary examination does not hold Barr personally responsible. But while the White House laid the blame for the incident at Barr’s feet, it stopped short of calling for Barr’s removal.
There may not be enough evidence in the report to justify his removal to skeptical judiciary officials.
But some at the Fed believe Trump has already demonstrated that the administration is willing to act on thin evidence.
Powell issued an unusual statement in January after being subpoenaed for evidence related to the renovation work.
“This new threat is not about my testimony last June or the renovation of the Federal Reserve’s building,” Powell said. “That’s an excuse.”
