A renovation caused a storm at the Federal Reserve

Deng Tong, Golden Finance

Federal Reserve Chairman Powell has asked the Federal Reserve Inspector General to review his $2.5 billion renovation of the Federal Reserve headquarters - a project that has become the focus of the Trump administration's attack: White House Office of Management and Budget Director Watt wrote to Powell last week, writing that Trump was "extremely concerned" about the cost overruns of the $2.5 billion project.

Will it cost as much as $2.5 billion to renovate the Federal Reserve building? Will Powell be fired for "renovation"? Who are the popular Federal Reserve candidates, and do they support rate cuts? A new battle for Federal Reserve candidates is unfolding.

1. Renovate the "Versailles" or renovate the Federal Reserve building?

Russell Vought, director of the U.S. Office of Management and Budget, harshly criticized the project in a letter, which involves two of the three buildings of the Federal Reserve in Washington, D.C., including its headquarters building, the Eccles Building.

According to Wikipedia, the Eccles Building is the headquarters building of the Federal Reserve Board of the United States, located at the intersection of Constitution Avenue and 20th Street in Washington, D.C. The building was designed by Paul Philippe Cret in a simple classical style. It was completed in 1937 and opened on October 20, 1937 by then-U.S. President Franklin D. Roosevelt. The building is named after Marina Stoddard Eccles, the chairman of the Federal Reserve during Franklin Roosevelt's time. Before that, the building was called the Federal Reserve Building.

The Fed estimated the cost of renovating its two main office buildings at $1.9 billion in 2019, but the cost is expected to rise to nearly $2.5 billion in 2023 due to "significant increases" in the costs of lumber, steel, cement and other building materials, according to budget documents cited in a Wall Street Journal report on the issue.

Federal law governing the Federal Reserve System gives the central bank the power to build facilities for its use and to maintain, expand or renovate them, while also giving the Fed sole control over those buildings and the spaces within them.

• Vought noted that the Federal Reserve "is moving forward with a massive renovation of its central bank headquarters. Cost overruns (roughly $700 million and counting) aside, the project envisions a rooftop terrace garden, VIP dining and elevators, water features, high-end marble, and more."

• At a recent Senate Banking Committee hearing on monetary policy, Chairman Tim Scott, R-Calif., criticized the renovation and cited the design elements highlighted in Vought's letter, saying in his opening remarks that the renovation "feels more like a Versailles project than a public institution project."

• Powell said at the hearing that the media coverage "has been misleading and inaccurate in many ways. I would just point out that there are no VIP restaurants, there is no new marble - we took the old marble out and put it back, and some of the old marble broke and we had to use new marble. There are no special elevators, just old elevators that were used before. There are no new water features, no beehives, and no rooftop terrace gardens.The inflammatory statements that have been reported in the media are either not in the current plan or they are inaccurate."

"The Federal Reserve can print money and then spend $2.5 billion to build a building with no real oversight from Congress, which is something that the people who wrote the Federal Reserve Act never thought of," Kevin Hassett, director of the National Economic Council, said on CNBC's "Financial Forum" on Monday.. We have real problems with regulation and overspending. ”

Second, will Powell be removed from office for this?

Trump once again harshly criticized Federal Reserve Chairman Powell's decision not to lower interest rates on Monday.

"Our Federal Reserve chairman is terrible, really terrible," Trump said at the White House. "It would be great if he could lower interest rates. I tried to be nice to him, but it didn't work. He's just a fool. Oh, he's a fool, a stupid guy. He really is like that."

Trump also said that it would be a good thing if Powell stepped down, and he should (step down).

Previously, Trump had urged Powell to cut interest rates countless times, and repeatedly called him "Mr. Too Late" and "Stupid" to express his dissatisfaction with Powell. U.S. Vice President JD Vance also said that the Fed was completely asleep. As President Trump said, they are too late, both to fight inflation during Biden's administration and to lower interest rates now.

But Trump can't fire Powell directly. Because the Federal Reserve is an independent agency, the president lacks the legal power to remove the Federal Reserve chairman unless he is removed from office for cause. Powell's critics believe that the allegations that he misled Congress may be grounds for his removal.

For details, please see the Golden Finance article: "How many times did Trump call for Powell to cut interest rates? Why didn't Powell cut it? 》

White House economic adviser Hassett said that if there is evidence to support it, US President Trump has the right to fire Federal Reserve Chairman Powell, adding that the Fed "bears a lot of responsibility" for the cost overruns of its Washington headquarters renovation. Hassett said any decision by Trump to try to fire Powell would depend largely on the Fed's response to the headquarters renovation.

3. Who are the candidates for the next Fed chairman?

On June 25, Trump called Federal Reserve Chairman Powell "terrible" and said he knew three or four people who were contenders for the next Fed chairman. When asked if he was interviewing candidates to replace Powell, Trump told reporters: "I know who I would choose within three or four people."

The main contenders include former Federal Reserve Governor Kevin Warsh, National Economic Council Director Hassett, current Federal Reserve Governor Waller and Treasury Secretary Bessant.

1. Walsh

Warsh, an American economist, was a member of the Federal Reserve Board (February 2006 to April 2011). Walsh has always been a staunch advocate of free trade and a strong dollar. He warned against increasing debt burdens and supported the Federal Reserve to "maintain independence" - in addition to emphasizing the value of the dollar, all of these positions are at odds with Trump. But investors will see the nomination of Walsh as a sign of stability, because he may oppose some of Trump's most extreme tariff plans, and Trump has always valued the opinions of the market, which has increased Walsh's chances of winning. Warsh supports Trump's interest rate cuts: The Fed's practice of keeping the monetary policy interest rate unchanged has frustrated the US president, and I deeply sympathize with this. The interest rate should be cut to a lower level. Trump's tariffs will not cause inflation.

2. Hassett

Hassett, director of the White House National Economic Council, is emerging among other popular candidates. Sources said Hassett has advantages that others do not have. He is the head of the National Economic Council and served as a key economic adviser during Trump's first term. Hassett has worked for Trump for nearly a decade and is one of the few advisers who has both won the president's trust and maintained a good relationship for a long time. After serving two positions in Trump's first administration, he joined a private equity firm founded by Trump's son-in-law Kushner and provided economic policy advice to Trump during the 2024 presidential campaign. In addition, Hassett is also seen as a highly disciplined and media-savvy spokesperson, which is exactly the quality that Trump has long valued in his senior appointees. Evercore IS pointed out that Hassett's biggest challenge is that he must prove to the market that although he is a loyal supporter of Trump, he can still maintain enough independence as the chairman of the Federal Reserve to maintain the credibility of the Federal Reserve. He publicly advocated for interest rate cuts, echoing Trump's view that "the Federal Reserve should be more supportive of economic growth."

3. Waller

On July 10, Federal Reserve Board member Waller said that even though the June employment data was strong, the Fed should still consider cutting interest rates at the July meeting. He emphasized in the Q&A session after his speech at the Dallas Fed: "I have made my point clear - the current policy interest rate level is too high, and we can discuss lowering the benchmark interest rate in July." He believes that inflation has cooled significantly, the job market has stabilized, and the recent price increases caused by tariffs are limited to specific commodities. He said, "When inflation is going down, we don't need to maintain such a tight policy stance. This is the decision-making logic that the central bank should have." The special thing about Waller's statement is not only the timing - the latest employment data has just shown that the labor market continues to be strong - but also because he is regarded as a popular candidate for the next Fed chairman.

4. Bessant

Bessant was a partner at Soros Fund Management and the founder of Key Square Group, a global macro investment company. Bessant has been an important fundraiser and donor for Trump and served as an economic adviser to Trump's 2024 US presidential campaign. On November 22, 2024, Bessant was nominated by Trump as the Secretary of the Treasury in the second Trump cabinet. Bessant believes that the Federal Reserve may cut interest rates in September or "earlier" because Trump's tariffs have only triggered mild inflation so far. Trump expressed satisfaction with Bessant: the market has become calm and positive due to US Treasury Secretary Bessant.

IV. Appendix: Response of the Board of Governors of the Federal Reserve System on the Renovation of the Federal Reserve Building

The Federal Reserve takes seriously its responsibility to properly manage public resources. The project will enable the Federal Reserve to integrate most of its operations, thereby gradually reducing costs. The project involves a comprehensive renovation and modernization that will preserve two historic buildings that have not been fully renovated since they were built in the 1930s and includes:

• Repair and update the buildings to make them safe, healthy and efficient places to work by removing asbestos and lead contamination and incorporating modern workplace techniques.

• Completely replace obsolete systems such as electrical, plumbing, heating, ventilation and air conditioning (HVAC), and fire detection and suppression systems.

• Perform major structural work to bring the buildings up to modern codes, including current accessibility, safety and security standards.

The work will also restore and enhance public spaces along the National Mall.

What are the main reasons for the increased costs during the renovation?

A variety of factors contributed to the increased costs. Key factors include:

• Changes to the original building design after consultation with the review agency;

• Variations over time between the original estimated and actual costs of materials, equipment, and labor;

• Unforeseen circumstances (e.g., asbestos levels exceeding expectations, toxic soil contamination, higher than expected groundwater levels).

How was marble used in the project?

The original exterior walls and stonework of both the Eccles and 1951 Constitution Avenue buildings were constructed of marble. The project has salvaged and reinstalled the original exterior marble, and will use new domestic marble where the original marble was damaged or needed to meet historic preservation guidelines and address issues raised by the external review agency.

Is there a new VIP restaurant?

The project does not include construction of a new VIP restaurant. The Eccles has conference rooms that are currently being renovated and maintained. These conference rooms are also used for catered meetings.

Are there VIP elevators?

No. Existing elevators are being restored, including one that serves the historic meeting room (also used for dining meetings). This restored elevator will be extended a short distance to facilitate access for people with disabilities. There are currently no VIP elevators.

Are there new water features?

No. The Commission’s original design included new water features for 1951 Constitution Avenue, but these have been removed. The original fountains at the Eccles Building are being restored.

What are the “garden terraces” and “vegetated roofs” in the 2021 proposal submitted to the National Capital Planning Commission?

In the 2021 submission to the National Capital Planning Commission, the term “garden terrace” refers to the ground-level front lawn of 1951 Constitution Avenue, which is used as a roof for the parking garage below. There is also mention of “vegetated roofs,” more commonly known as green roofs, which are often used to help with stormwater management, improve building efficiency, and improve the life of the roof. Other federal government buildings, such as the Department of Justice and the Department of the Interior, also have green roofs and are encouraged by the General Services Administration.

Has the Eccles Building been fully renovated before?

No. While regular maintenance and work has been done to keep the building usable (including a project in the late 1990s), it has not undergone a full renovation since it was built nearly 100 years ago.

Why do the Federal Reserve buildings need renovations?

Major systems in both buildings are aging and need to be replaced for health and safety reasons. These systems include plumbing, electrical, fire suppression, water, and HVAC. Some of the systems date back to their construction in the 1930s.

The project will also remediate safety issues by removing hazardous materials such as asbestos and lead, and bring the buildings up to modern codes. While regular maintenance has been done to keep the buildings habitable, neither building has undergone a full renovation since they were built.

Interior spaces were also made more accessible to people with disabilities, including step-free access to the main lobby and extending the original elevator a short distance to allow access to historic meeting rooms without the use of ramps.

What is the history of these buildings? What are the challenges of restoring historic buildings?

The Eccles Building was built between 1935 and 1937 as the headquarters of the Federal Reserve Board. The 1951 Constitution Avenue Building was built in 1932 and was owned by the U.S. Public Health Service. Over its history, it has housed various government agencies, including the Joint Chiefs of Staff during World War II, the Atomic Energy Commission, the National Science Foundation, and the Department of the Interior. Both buildings are listed on the District of Columbia Register of Historic Places, and the 1951 Constitution Avenue Building is listed on the National Register of Historic Places.

The construction project identified key architectural features to preserve the historic integrity of the buildings, such as stone materials such as marble, exterior walls, meeting rooms, and other spaces. The historic preservation of the Eccles Building also includes the preservation of the building’s original elevators and historic meeting rooms.

Construction involving the preservation of historic spaces requires specialized processes and approaches that are generally more complex and costly than new construction or renovation of spaces that are not historic or located on the National Mall.

Will this project reduce costs for the Federal Reserve?

Yes. The Board has long needed to lease space in several commercial office buildings to support its operations. This project allows the Board to consolidate its operations and reduce expenses in leasing space elsewhere.