A Renovation Triggering Fed Turmoil

Deng Tong, Golden Finance

Federal Reserve Chairman Powell has asked the Fed's inspector general to review its $2.5 billion renovation project for the Federal Reserve headquarters — a project that has become a focal point of attacks from the Trump administration: White House Office of Management and Budget Director Mulvaney wrote to Powell last week, stating that Trump is "extremely concerned" about the cost overruns of this $2.5 billion project.

Is the cost of renovating the Federal Reserve building as high as 2.5 billion dollars? Will Powell be fired because of the "renovation"? Who are the popular candidates for the Federal Reserve, and do they support interest rate cuts? A new power struggle among candidates for the Federal Reserve is unfolding.

1. Renovate the "Palace of Versailles" or refurbish the Federal Reserve Building?

The Director of the Office of Management and Budget, Russell Vought (, harshly criticized the project in a letter, which involves two of the three buildings of the Federal Reserve located in Washington, D.C., including its headquarters, the Eccles Building ).

According to Wikipedia, the Eccles Building is the headquarters 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 and is styled in a minimalist classical manner. It was completed in 1937 and was inaugurated by then-President Franklin D. Roosevelt on October 20, 1937. The building is named after Marriner S. Eccles, the Chairman of the Federal Reserve during the Roosevelt administration. Prior to that, the building was known as the Federal Reserve Building.

The Federal Reserve estimated the renovation cost of its two main office buildings to be $1.9 billion in 2019, but according to budget documents cited in a 2023 report by The Wall Street Journal on the matter: due to a "significant increase" in the cost of wood, steel, cement, and other building materials, the expected cost has risen to nearly $2.5 billion.

The federal laws governing the Federal Reserve System grant the central bank the authority to construct facilities for its use, as well as the power to maintain, expand, or renovate these facilities, while also granting the Federal Reserve exclusive control over these buildings and their internal spaces.

• Watt pointed out: The Federal Reserve is "vigorously promoting the large-scale renovation of the central bank's headquarters. Leaving aside the cost overruns (around $700 million and still increasing), the project plans to build a rooftop terrace garden, a VIP restaurant and elevator, water features, high-end marble, and so on."
• During the recent Senate Banking Committee hearing on monetary policy, Chairman and Royal Counsel Tim Scott criticized the renovation project and listed the design elements that Waters emphasized in her letter, stating in his opening remarks that the renovation "feels more like a project for the Palace of Versailles rather than for a public institution."
• Powell stated at the hearing: Media reports "are misleading and inaccurate in many ways. I just want to point out that there is no VIP restaurant, and no new marble—we took down the old marble and put it back; in some places where the old marble was damaged, we had to use new marble. There is no dedicated elevator, only the old elevator that was used before. There is no new water feature, no beehive, and no rooftop terrace garden. The inflammatory remarks reported by the media are either not part of the current plan or are inaccurate.

Kevin Hassett, director of the U.S. National Economic Council, said on CNBC's "Financial Forum" program on Monday: "The Federal Reserve can print money and then spend $2.5 billion to build a building without real oversight from Congress, which is something that the people who drafted the Federal Reserve Act never thought of. We are facing real issues of regulation and excessive spending."

2. Will Powell be dismissed because of this?

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

"Our Federal Reserve chairman is terrible, really terrible," Trump said at the White House. "If only he could lower interest rates, I tried to be nice to him, but it didn't work. He's just an idiot. Oh, he's an idiot, a stupid guy. That's really how it is."

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

Previously, Trump had urged Powell to cut interest rates countless times, repeatedly referring to him as "Mr. Too Late" and "fool," expressing his dissatisfaction with Powell. U.S. Vice President JD Vance also stated that the Federal Reserve is completely asleep. As President Trump said, they are too late, whether in combating inflation during Biden's administration or now in lowering interest rates.

But Trump cannot directly fire Powell. This is because the Federal Reserve is an independent agency, and the president lacks the legal authority to remove the Fed chairman unless he is dismissed for cause. Critics of Powell believe that the accusations of misleading Congress could become grounds for his dismissal.

For details, please refer to the Golden Finance article: "How Many Times Did Trump Call for Powell to Cut Rates? Why Doesn't Powell Cut?"

White House economic adviser Hassett stated that if there is evidence to support it, President Trump has the authority to fire Federal Reserve Chairman Powell, and added that the Federal Reserve has "a lot of responsibility" regarding the overspending on the renovation costs of its headquarters in Washington. Hassett indicated that any decision by Trump to dismiss Powell would largely depend on the Federal Reserve's response to the renovation issue.

3. Who are the candidates for the next Chair of the Federal Reserve?

On June 25, Trump called Federal Reserve Chairman Powell "terrible" and stated that he knows three or four people who are competitors for the next Federal Reserve chairman. When asked if he was interviewing candidates to replace Powell, Trump told reporters: "I know who I would pick among the three or four people."

The main competitors include former Federal Reserve Governor Kevin Warsh, Chairman of the Council of Economic Advisers Kevin Hassett, current Federal Reserve Governor Christopher Waller, and Treasury Secretary Steven Mnuchin.

( 1.Wash

Warsh, an American economist, served as a member of the Federal Reserve Board from February 2006 to April 2011. Warsh has been a staunch advocate of free trade and a strong dollar, warning against increasing debt burdens, and supporting the Fed's "independence"—except for emphasizing the value of the dollar, this position is at odds with Trump's views. However, investors will view Warsh's nomination as a sign of stability, as he may oppose some of Trump's most extreme tariff proposals, and Trump has always valued market opinions, which boosts Warsh's chances. Warsh supports Trump's rate cuts: The Fed's decision to maintain interest rates has left the U.S. president feeling frustrated, and I sympathize with that. Rates should be lowered to a more reasonable level. Trump's tariffs will not cause inflationary effects.

) 2. Hassett

The Director of the National Economic Council of the White House, Hassett, is standing out among other popular candidates. Sources indicate that Hassett possesses advantages that others do not. He is the head of the National Economic Council and served as a key economic advisor during Trump's first term. Hassett has worked for Trump for nearly a decade and is one of the few advisors who has earned the president's trust while maintaining a good relationship over the long term. After holding 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. Additionally, Hassett is seen as a disciplined spokesperson who is good at handling the media, a quality that Trump has long valued in his senior appointees. Evercore IS points out that Hassett's biggest challenge is to prove to the market that, despite being a loyal supporter of Trump, he can still maintain enough independence while serving as the chairman of the Federal Reserve to uphold the credibility of the Fed. He publicly advocates 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 Governor Waller stated that even though the June employment data was strong, the Federal Reserve should still consider lowering interest rates at the July meeting. In the Q&A session following his speech at the Dallas Fed, he emphasized, "I have made my point clear - the current policy interest rate is too high, and we can discuss lowering the benchmark rate in July." He believes that inflation has clearly cooled, the job market is stabilizing, and the recent price increases caused by tariffs are limited to specific goods. He stated, "When inflation is falling, we do not need to maintain such a tight policy stance; this is the decision-making logic that a central bank should have." The significance of Waller's statement lies not only in its timing - as the latest employment data has just shown that the labor market remains strong - but also because he is seen as a leading candidate for the next chairman of the Federal Reserve.

4. Besent

Bessent was formerly a partner at Soros Fund Management and is the founder of the global macro investment firm Key Square Group. Bessent has been an important fundraiser and donor for Trump and served as an economic advisor for Trump's 2024 presidential campaign. On November 22, 2024, Bessent was nominated by Trump as Secretary of the Treasury in the second Trump Cabinet. Bessent believes that the Federal Reserve may lower interest rates in September or "earlier," as Trump's tariffs have only triggered moderate inflation so far. Trump has expressed satisfaction with Bessent: due to the role of U.S. Treasury Secretary Bessent, the market has become calm and optimistic.

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

The Federal Reserve is seriously fulfilling its responsibility to properly manage public resources. This project will enable the Federal Reserve to consolidate most of its operations, thereby gradually reducing costs. The project involves a comprehensive renovation and modernization, which will preserve two historic buildings that have never undergone a complete renovation since they were built in the 1930s, including:

• By eliminating asbestos and lead contamination and employing modern workplace technologies for repair and updates, buildings can become safe, healthy, and effective work environments.
• Completely replace outdated systems, such as electrical, plumbing, heating, ventilation, and air conditioning ###HVAC###, as well as fire detection and suppression systems.
• Carry out the main structural engineering to ensure that the building meets modern standards, including current accessibility, safety, and security standards.

This work will also restore and improve the public spaces along the National Mall.

What are the main reasons for the increase in costs during the renovation process?

Multiple factors have led to rising costs. Key factors include:

• Amend the original architectural design after consultation with the review agency;
• The difference between the original estimated costs of materials, equipment, and labor and the actual costs varies over time;
• Unforeseen circumstances (e.g., asbestos content exceeding expectations, toxic soil contamination, groundwater levels higher than expected).

How is marble used in the project?

The original exterior walls and stone carvings of the Eckers and Constitution Avenue buildings from 1951 were constructed using marble. The project has reclaimed the original external marble and reinstalled it, and new domestic marble will be used where the original marble is damaged or where there is a need to comply with historical preservation guidelines and address issues raised by external review agencies.

Are there any new VIP restaurants?

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

Is there a VIP elevator?

No. The existing elevator is under repair, including one that serves the historic conference room (also used for dining meetings). This repaired elevator will be extended for a short distance to facilitate access for disabled individuals. Currently, there is no elevator restricted for use by specific personnel only.

Are there any new water features?

No. The committee's original design included the addition of new water features to Constitution Avenue in 1951, but these water features have been removed. The original fountain of the Eckels Building is currently under repair.

What are the "garden terrace" and "vegetated roof" in the proposal submitted to the National Capital Planning Commission in 2021?

In the document submitted to the National Capital Planning Commission in 2021, the term "garden terrace" refers to the lawn in front of Constitution Avenue at ground level, which is used as the roof of the parking garage below. Additionally, there is a mention of "vegetated roofs," commonly referred to as green roofs, which are typically used to aid in stormwater management, improve building efficiency, and extend the lifespan of roofs. 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 Akerus Building undergone a complete renovation before?

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

Why does the Federal Reserve building need renovation?

For health and safety reasons, the main systems of the two buildings have aged and need to be replaced. These systems include plumbing, electrical, fire protection, water supply, and HVAC systems. Some systems can be traced back to the 1930s.

The project will also address safety issues by removing hazardous materials such as asbestos and lead, bringing the buildings up to modern standards. While the buildings have undergone regular maintenance to keep them habitable, neither of these structures has had a comprehensive renovation since their completion.

The internal space of the hotel has also become more accessible for people with disabilities, including providing a step-free passage to the main lobby and extending the existing elevator a short distance so that the historic meeting room can be accessed without the need for a ramp.

What is the history of these buildings? What challenges do we face in restoring historic buildings?

The Eckels Building was constructed between 1935 and 1937 and served as the headquarters of the Federal Reserve Board at the time. The Constitution Avenue Building, completed in 1951, was originally owned by the United States Public Health Service, having been built in 1932. Throughout 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 D.C. Historic Landmarks Registry, with the Constitution Avenue Building also being listed on the National Register of Historic Places.

The construction project has identified key architectural features to preserve the historical integrity of the building, such as marble and other stone materials, the exterior walls, conference rooms, and other spaces. The historical preservation work of the Eckles Building also includes retaining the original elevators and the historically significant conference rooms.

The construction involving the protection of historical spaces requires specialized processes and methods, which are generally more complex and costly compared to spaces that are newly built or renovated without historical significance or located in national squares.

Will this project reduce the costs for the Federal Reserve?

Yes. For a long time, the board needed to lease several commercial office spaces to support its operations. This project enables the board to consolidate its business and reduce expenses related to leasing space elsewhere.