Trump Administration and the Fed: A Power Struggle Escalates

The Trump administration appears to be leveraging the Federal Reserve's expensive renovation project of two historic buildings on the National Mall as a lever to potentially force Chairman Jerome Powell's resignation. This comes amid ongoing disagreements between Trump and Powell regarding interest rates, with Trump repeatedly calling for rate cuts.

Interference in Urban Planning Decisions

In a concerning development, the administration has installed loyalists in high-ranking positions at the National Capital Planning Commission (NCPC), the body responsible for overseeing federal building design. A senior White House official even hinted that the Fed's building alterations might violate laws governing the NCPC. This interference raises questions about the Fed's independence and its ability to make decisions free from political pressure.

Internal Review of the Renovation Project

In an attempt to diffuse the situation, Fed Chairman Jerome Powell has requested that the Fed's Inspector General, Michael Horowitz, review the cost of the renovation project and any other matters he deems appropriate. While the Inspector General's office has reviewed the project previously, this new review comes at a time when the project is under intense scrutiny.

Accusations of Extravagance

White House officials and congressional allies have accused the Fed of constructing an overly lavish campus in its long-standing headquarters building and an adjacent historic building. However, the Fed argues that it is committed to preserving these historic buildings while ensuring a safe and modern working environment for its employees.

The Fed's Authority in Real Estate Decisions

The Federal Reserve Act grants the Federal Reserve Board broad authority in its real estate decisions, allowing it to "maintain, enlarge, or remodel" any building it has acquired or constructed, and to have "sole control" over such buildings and the space within them. This broad mandate gives the Fed significant flexibility in managing its properties, but it also makes it vulnerable to criticism and scrutiny.

The Fed Defends Itself

In a rare move, the Fed added a Frequently Asked Questions (FAQ) page to its website defending the renovation project of its headquarters building. The page provided extensive background information and directly addressed accusations leveled by the Trump administration. The Fed asserted that the Committee is "generally not subject to NCPC guidance on its construction projects" and that it does not believe the changes made to its project require "further review" of its plans that were approved in 2021. It also denied the existence of VIP dining rooms, VIP elevators, or new water features.

Rising Costs: A Closer Look

The Fed explained that the project's rising costs are driven by several factors, including: design changes (resulting from consultations with regulatory bodies), cost variances (deviation of original estimates of materials, equipment, and labor from actual costs over time), and unforeseen conditions (discovery of higher-than-expected levels of asbestos, toxic soil contamination, and higher-than-expected groundwater levels). These factors combined have contributed to the overall increase in project cost.

Potential Implications for Central Bank Independence

This controversy raises questions about the independence of the central bank. Will the Trump administration allow this issue to influence monetary policy decisions? This development casts a shadow of doubt on the future relationship between the White House and the Federal Reserve.