Trump administration enquiry into Fed's 2.5bn restructuring. Bessent after Powell?

On Monday, US Treasury Secretary Scott Bessent strongly supported the investigation, saying that the decision to undertake the project should be reconsidered.

The investigation into the project, which is now more than $700 million over budget, has fuelled speculation that it could offer Donald Trump a way to fire Powell before his term expires in May 'for cause'. However, legal experts are sceptical that spending overruns can be a valid reason for dismissal.

'Restructuring that exceeds the budget is not illegal, it is not misconduct. Restructuring always exceeds the budget,' said Lev Menand, professor at Columbia University. What then is the basis for attacking Powell?

Since returning to the White House, Trump has pilloried the Fed chairman for his refusal to cut interest rates, a decision that, according to the US president, has cost hundreds of billions of dollars in borrowing costs and is stalling US growth.

However, a Supreme Court opinion issued earlier this year indicated that the president would find it difficult to dismiss the central banker solely because of political disagreements.

In recent weeks, the administration has opened a new front in its attacks, claiming that Powell 'grossly' mishandled the restructuring and misled Congress or failed to inform the National Capital Planning Commission (NCPC) of plans to reduce costs.

The Fed, which finances itself primarily through the interest on securities it holds as part of its monetary policy operations and the fees it charges banks, rather than through congressional appropriations, believes it is not required to inform the NCPC of the changes.

In his defence, Powell wrote to Senators Tim Scott and Elizabeth Warren, of the Senate Banking Committee, to inform them that the central bank's inspector general will examine the excess costs.

Other recent federal construction projects have cost less than the approximately $2,000 per square metre required by the central bank. The Smithsonian Museum of the American Indian, at the opposite end of the National Mall, cost about $800 per square metre at its completion in 2004, nearly $1,400 per dollar in 2025.

Andrew Levin, a former Fed economist and now a professor at Dartmouth College, argued that the decision to add additional square footage to create a staff car park and an underground tunnel connecting the two buildings unnecessarily increased the overall cost. "The Fed could have leased 500 parking spaces from nearby commercial garages for about $30 million," Levin claimed. "The underground parking garage they are building will probably cost almost 10 times that."

However, nearby garages would struggle to accommodate Fed staff: the commercial car park closest to the central bank has only 130 spaces, while others a few blocks away offer only about 540 in total.

And it is not unusual for federal buildings to offer on-site parking for employees. The Robert C Weaver Federal Building, which houses the US Department of Housing and Urban Development, has three levels of underground parking, and the Ronald Reagan Building boasts a 2,000-space parking garage.

Official data suggest that federal construction projects often cost more than expected. A 2018 Government Accountability Office report found that of 36 major non-military construction projects completed between 2014 and 2018, more than two-thirds went over budget.

The original FBI headquarters on Pennsylvania Avenue in Washington, DC, completed in 1974, cost more than twice the original estimate. The Ronald Reagan Building and the International Trade Center on 14th Street, initially budgeted at $362 million, was estimated at over $800 million.

A 2021 report by the US General Services Administration, which manages federal government properties, found that final construction costs were, on average, 10 per cent lower than originally forecast. Only one project that year exceeded the Fed's: the Degetau Federal Building in San Juan, Puerto Rico.

However, the Fed had to deal with a monument that was inaugurated in 1937 and has not been significantly modernised since then.

Powell stated in a letter to Vought that neither the Eccles Building nor 1951 Constitution Avenue had received a 'complete renovation' since their construction. The second building had been vacant prior to its move to the Fed in 2018, according to a General Services Administration press release.

The central bank has not yet submitted a detailed list of excess costs. However, Powell stated in his letter that the project involved "significant structural repairs" and the clean-up of asbestos and lead contamination, as well as the overhaul of electrical, plumbing and heating systems, all of which contributed to the project.

Other central banks around the world have spent billions on their headquarters. The European Central Bank building cost EUR 1.2 billion, was completed three years late and exceeded the initial budget of EUR 850 million by EUR 350 million. At the end of the 12-year project in 2014, the building was not big enough to accommodate all the ECB staff.

Like the Fed, the Eurozone's central bank said its costs had increased in part because the project involved the preservation of a historic building: the colossal Großmarkthalle, built in the 1920s to house Frankfurt's fruit and vegetable markets.

The Fed's art collection may have impressed Vought, with its Andy Warhol works and Georgia O'Keeffe prints, as well as staff exhibits and portraits of former presidents. However, other central banks can boast similar treasures.

The National Bank of Austria owns almost 50 historical string instruments, including nine Stradivarius violins, which it lends to musicians, while the Bundesbank owns an impressive collection of 20th century German abstract art.

Moreover, while the US central bank's facilities might hold their own on the National Mall in Washington, DC, its interiors are not as spectacular as those of the Banque de France. Its headquarters in the first arrondissement of Paris is so luxurious that it prompted a former US central banker to state that 'France could go back to the gold standard if it withdrew all the gold from the Banque de France'.