Fed Watchdog Clears Powell-Era Renovation of Criminal Wrongdoing, but Faults Central Bank Management

The Federal Reserve's internal watchdog has concluded that a multi-billion-dollar renovation of the central bank's Washington headquarters does not warrant criminal prosecution or a referral to federal law enforcement, delivering a significant rebuke to critics who had hoped the costly project would ensnare former Chair Jerome Powell in legal jeopardy.

In findings released on Wednesday, the Fed's inspector general said its review of the renovation of two historic Fed buildings found no reasonable basis to believe a federal criminal law had been broken. The office also said it uncovered no evidence of administrative misconduct that would justify further action against central bank personnel.

"At no point during our evaluation did we find reasonable grounds to believe that a violation of federal criminal law had occurred requiring a referral to the US attorney general," the inspector general stated in its report, according to the findings made public this week.

The probe centered on a renovation project whose costs have ballooned by roughly $1bn beyond original projections, pushing the estimated total to approximately $2.4bn. The two buildings at the heart of the review are among the most recognizable structures in the Fed's Washington complex, and their overhaul had become an unexpected political flashpoint during Powell's tenure.

The project's spiraling price tag drew sustained attention from President Donald Trump, who repeatedly cited the overruns as evidence of mismanagement at the central bank. Trump had persistently pressured Powell to cut interest rates, and the renovation became a recurring theme in his public criticism of the Fed chief.

The pressure campaign extended beyond rhetoric. The Department of Justice opened an investigation into the renovation and into Powell's congressional testimony about it. That inquiry was closed earlier this year after a federal judge sided with Powell's contention that the investigation was a pretext designed to coerce the Fed chair into lowering borrowing costs.

While the inspector general declined to pursue criminal charges, the report did not fully exonerate the Fed's handling of the project. Investigators identified substantial shortcomings in how the central bank managed the renovation, including a failure to secure what is known as a "guaranteed maximum price" provision in its contract with the builder.

Such a clause would have transferred responsibility for cost overruns from the Fed to the contractor, capping the central bank's financial exposure. Its absence left the Fed bearing the brunt of the budget increases, a structural weakness that the watchdog flagged as a key driver of the project's fiscal problems.

The report also undercut a central line of criticism from the White House. It found that design elements repeatedly singled out by Trump's team — including marble finishes, water features, and a garden terrace — "did not materially contribute" to the overruns. The finding suggests the cost escalation stemmed more from contractual and management failures than from aesthetic extravagance.

The distinction matters because the White House had framed the design choices as emblematic of wasteful spending at an agency Trump frequently accused of undermining his economic agenda. By dismissing those features as a minor factor, the watchdog shifted the focus toward procedural lapses rather than opulent design.

Cost overruns on major government construction projects are far from unusual, a point the report implicitly acknowledges. As a comparison, the source article notes that Trump's own budget for White House ballroom construction doubled from its initial estimates — an example of how projected costs for high-profile building projects frequently prove unreliable.

For Powell, the watchdog's decision removes one of the most tangible legal threats he faced during a tenure marked by extraordinary friction with the White House. Although he has since stepped down as chair, Powell remains a governor on the Federal Reserve Board, and the episode is likely to remain part of his legacy.

The findings also carry implications for the Fed's institutional independence. The attempt to use a renovation probe as leverage over interest rate policy raised alarms among economists and former officials who warned that such pressure could compromise the central bank's ability to set monetary policy free from political interference.

The closure of the DOJ investigation earlier this year, followed now by the inspector general's decision against a criminal referral, effectively ends the legal exposure connected to the renovation. What remains is a management critique that could inform how the Fed oversees future large-scale building projects and contracts.

The watchdog's report lands amid a broader period of tension between the Fed and the Trump administration. Recent months have seen disputes over mortgage fraud claims involving Fed Governor Lisa Cook, warnings from the current Fed chair about insufficient progress on inflation, and the central bank's first interest rate increase in three years — all signs of an institution navigating intense political scrutiny while managing a complex economic landscape.