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 costly renovations to his Fed headquarters.
Combined with separate disputes involving Governors Lisa Cook and Michael Barr, Trump’s decision to hand over headquarters spending issues to former Chairman Jerome Powell means the president could potentially seek the removal of three of the Fed’s seven board members. But recent court rulings suggest any attempt would face significant legal hurdles.
Any legal maneuvering could take months and have the effect of persuading his targets to postpone any plans to exit the Fed, as Powell has already done. Trump’s ability to force the Fed to reverse its recent decision to raise interest rates appears limited, despite the institutional damage he could cause if he takes further legal action.
Trump appears to be weighing his options on how to proceed. The Fed is expected to announce its latest interest rate decision on October 28, just days before the November 3 midterm elections. The administration faces a deadline in the Cook case shortly after the election.
If the administration opposes any of the three governors, it could backfire on Trump, said Scott Alvarez, former general counsel at the Fed.
“Everyone has an incentive to file a lawsuit and stay,” Alvarez said.
“The Supreme Court said Lisa Cook can stay while the trial continues. If they all stay while it continues, then all he’s done is harm his own agenda,” Alvarez said of Trump.
Trump is furious following the report released Wednesday by the Fed’s inspector general. “Powell is a disaster,” the president said Wednesday when asked by reporters about the findings. Powell “should not serve on the Federal Reserve Board.”
Trump nominated Powell during his first term, then quickly soured on him.
Trump asked Attorney General Todd Blanche to review the IG report. A spokesperson for Jeanine Pirro, the U.S. attorney for the District of Columbia, said her office was also reviewing the report.
The Justice Department did not 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 his subpoenas in the case, saying their “primary (if not sole) purpose is to harass and pressure Powell.”
The Fed declined to comment on Trump’s remarks about Powell.
IG’s highly anticipated report reveals that a series of management problems allowed construction costs to rise by about $1 billion as the Fed renovated its Washington offices. But the report found no evidence of administrative misconduct and found nothing to warrant a criminal referral to prosecutors.
“Personally, I don’t think the renovation report would be enough for a court to remove Jay for cause,” Alvarez said. “It exonerates him from a criminal standpoint, 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 two historic federal buildings in Washington. The IG’s office blames the Fed for failing to impose a guaranteed maximum price for the project, among other issues.
But the retrospective report cannot directly prove that the Fed would have saved money if it had performed better. He acknowledges in a footnote that better management “does not necessarily mean that the overall cost of the project will be lower.”
The report also does not blame 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 responsibilities to staff, as might be expected for a construction project in a large organization.
Powell can remain Fed governor until January 2028. He said in March he would stay until the legal threat is “well and truly over, with transparency and finality.”
In June, the Supreme Court blocked Trump’s attempt to impeach Cook over allegations that she lied on a mortgage application. The court said she must be informed of the allegations and given an opportunity to respond, and issued guidance on what a later determination of motive might entail.
Since August, Cook has been given notice and an opportunity to respond, removing a barrier to his possible deportation. The administration would still have to demonstrate to the courts that it met the motivation threshold, which would likely require another review by the Supreme Court.
The White House has not publicly addressed the issue since Cook’s response, although in an interview published Thursday by Time, Trump complained about Cook. The White House declined to comment on how the president might respond to the IG report’s findings.
New Fed Chairman Kevin Warsh is “controlled to some extent” by the board, Trump said. “We have Lisa there,” he said.
For now, Cook’s case is pending before Judge Jia Cobb in U.S. District Court. She asked the parties for a joint status report by November 6 on how the litigation should proceed.
Meanwhile, an external investigation into the Fed’s handling of Silicon Valley Bank’s 2023 bankruptcy is underway. A preliminary report from the investigative firm Starling Advisory Group criticized the Fed’s banking regulators, who it said should have known about the bank’s risks up to a year before its failure.
The preliminary review does not assign any responsibility to Barr personally. But the White House blamed Barr for the episode, without calling for his dismissal.
There may not be enough evidence in this report to warrant its referral to a skeptical justice system.
But some inside the Fed say Trump has already proven the administration is willing to act on scant evidence.
Powell issued an extraordinary statement in January after subpoenas for evidence regarding the renovation.
“This new threat is not about my testimony last June or the renovation of the Federal Reserve buildings,” Powell said. “These are pretexts.”
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