President Donald Trump has new ammunition he can use in his campaign against his perceived opponents at the Federal Reserve, although a watchdog report released Wednesday found no basis for criminal charges stemming from the Fed’s costly headquarters renovations.
Combined with separate disputes involving governors Lisa Cook and Michael Barr, Trump’s decision to pin the headquarters spending issues on former Chair Jerome Powell means the president could potentially seek the removal of as many as three of the Fed’s seven board members. But recent court rulings suggest any attempt would face significant legal hurdles.
Any legal maneuvers could take months to play out and may in practice have the effect of persuading his targets to postpone any plans to leave the Fed, as Powell has already done. Trump’s ability to force the Fed off its recent decision to raise interest rates appears limited, despite the institutional damage he could do if he took further legal action.
Trump appears to be weighing his options for how to proceed. The Fed is scheduled to announce its latest interest-rate decision on Oct. 28, only days before the Nov. 3 midterm election. The administration faces a deadline in the Cook case shortly after the vote.
If the administration does move against any of the three governors, it may backfire for Trump, former Fed General Counsel Scott Alvarez said.
“All have an incentive to litigate and stay,” Alvarez said.
“The Supreme Court said that Lisa Cook can stay while the litigation goes on. If they all stay while he goes on, then all he’s done is hurt his own agenda,” Alvarez said of Trump.
Trump fumed in the wake of Wednesday’s IG report. “Powell is a disaster,” the president said Wednesday when asked by reporters about the findings. Powell “should not be sitting on the Federal Reserve Board.”
Trump appointed Powell during his first term, then quickly soured on him.
Trump asked Attorney General Todd Blanche to review the inspector general’s report. A spokesman for Jeanine Pirro, the U.S. attorney for the District of Columbia said her office was also reviewing the report.
The DOJ didn’t respond to emailed questions about its plans and how Blanche’s review might differ from Pirro’s. Pirro previously oversaw a criminal investigation into Powell. A judge quashed her subpoenas in the matter, saying their “dominant (if not sole) purpose is to harass and pressure Powell.”
The Fed declined to comment on Trump’s remarks about Powell.
The long-awaited IG report found a raft of managerial problems had allowed construction costs to jump by about a billion dollars as the Fed renovated its Washington office space. But the report found no evidence of administrative misconduct and saw nothing meriting a criminal referral to prosecutors.
“I personally don’t think the renovation report would be enough for a court to remove Jay for cause,” said Scott Alvarez, a former Fed general counsel. “It exonerates him on the criminal side, but it also says they didn’t identify any administrative misconduct.”
The report details how bureaucratic disorganization left the Fed vulnerable to overspending on a project to renovate and connect a pair of historical federal buildings in Washington. The IG’s office faults the Fed for failing to enforce a guaranteed maximum price for the project, among other issues.
But the backward-looking report can’t directly prove the Fed would have saved money had it operated better. It acknowledges in a footnote that better management “does not necessarily mean the project’s overall cost will be lower.”
Nor does it pin the cost overruns on Powell or any individual governor, instead describing failures in project management, contracting and the board’s governance and oversight systems. The IG’s office notes that the board delegated responsibility to the staff, as it would have expected for a construction project at a large organization.
Powell can stay on the Fed as a governor through January 2028. He said in March he would remain until the legal threat was “well and truly over, with transparency and finality.”
The Supreme Court in June blocked Trump’s attempt to remove Cook over allegations that she had lied on a mortgage application. The court said she was owed notice of the allegations and a chance to respond, and issued guidance for what a later finding of cause might entail.
As of August, Cook has received the notice and opportunity to respond, removing one obstacle to her potential removal. The administration would still need to show courts it has met the threshold for cause, which would likely require another Supreme Court review.
The White House hasn’t publicly addressed the issue since Cook’s response, though in an interview published by Time on Thursday Trump complained about Cook.
Newly confirmed Fed Chairman Kevin Warsh is “controlled to a certain extent” by the board, Trump said. “We have Lisa on there,” he said.
For now, the Cook case is pending before U.S. District Court Judge Jia Cobb. She has asked the parties for a joint status report by Nov. 6 on how the litigation should proceed.
Meanwhile an outside investigation into the Fed’s handling of the 2023 failure of Silicon Valley Bank is ongoing. A preliminary report by the investigative firm Starling Advisory Group faulted the Fed’s bank supervisors, whom it said should have known about the risks to the bank as much as a year ahead of its failure.
The preliminary review doesn’t assign responsibility to Barr personally. But the White House heaped the blame for the episode at Barr’s feet, while stopping short of calling for his firing.
There may not be evidence enough in that report to justify his removal to a skeptical judiciary.
But some in the Fed believe Trump has already proved the administration is willing to act on thin evidence.
Powell issued an extraordinary statement in January after subpoenas for evidence involving the renovation.
“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings,” Powell said. “Those are pretexts.”