Trump vs Powell: Monetary policy could hinge on office renovations

But the stakes are much higher: monetary policy at the world’s most important central bank and its independence from political pressure.

The argument comes as President Donald Trump continues to demand that Chairman Jerome Powell lower interest rates. But Powell and most other Fed policymakers have maintained a wait-and-see approach, saying Trump’s tariffs could stoke inflation later this year.

Now the White House is accusing Powell of mismanaging the Fed, which is a self-funded agency, as well as renovations at the central bank’s headquarters in Washington, DC.

In a letter that was sent to the Fed chief on Thursday, Office of Management and Budget Director Russell Vought cited the project’s cost overruns and raised questions about its compliance with the National Capital Planning Act, which requires a commission to OK renovation plans.

Powell’s recent statements that there are no plans for a VIP dining room, new marble, special elevators, new water features, or rooftop terrace garden suggest plans changed from what was approved in 2021, according to the letter, which also listed nearly a dozen questions on the project.

“Although minor deviations from approved plans may be inevitable, your testimony appears to reveal that the project is out of compliance with the approved plan with regard to major design elements,” Vought wrote.

In an interview on CNBC on Friday, he called for an investigation into the project and said it’s time for the Fed to lower interest rates. When asked if the renovation is linked to Powell’s stance on rates, Vought replied, “This certainly has to do with the fiscal mismanagement of the Fed, of which [interest rates] is one aspect of it.”

On Sunday, National Economic Council Director Kevin Hassett upped the ante further, indicating that Powell’s job could be at stake.

When asked by ABC News if the renovation could be used as a reason to fire Powell, Hassett said, “I think that whether the president decides to push down that road or not is going to depend a lot on the answers that we get to the questions that Russ Vought sent to the Fed.”

For his part, Trump has previously denied that he would fire Powell, but said he should “resign immediately,” if allegations that he misled lawmakers over the renovations prove true. Meanwhile, Powell has said Trump can’t fire him, and the Supreme Court ruled this year that Fed officials have greater protections from being terminated.

A seat on the board of governors will open up early next year that will allow the president to name a potential replacement for Powell. But financial markets are underpricing the risk that he could be ousted, George Saravelos, Deutsche’s global head of FX strategy, said in a note.

The Fed responds to White House attacks

CNBC reported that the Fed updated its frequently asked questions webpage on Friday with details that seemingly rebut claims from the Trump administration.

The Fed said the renovation will remove asbestos and lead contamination as well as replace antiquated electrical, plumbing, HVAC, and fire-safety systems. Major structural work will also bring buildings up to code on accessibility, security, and safety standards.

It attributed cost overruns to changes stemming from consultations with review agencies; actual costs of materials, equipment, and labor; unforeseen conditions like more asbestos than anticipated, toxic contamination in soil, and a higher-than-expected water table.

The FAQs also addressed details like marble, the VIP dining room, new elevator, water features, and garden terrace.

Prior to the current project, the Fed’s Marriner S. Eccles building hasn’t been overhauled like this before.

“While periodic maintenance and work has been done to keep the building occupiable (including a project in the late 1990s), there has been no comprehensive renovation since it was constructed nearly 100 years ago,” the Fed said.

But even installing a new Fed chief who is more aligned with Trump won’t guarantee that rates will come down.

Powell’s term as chair of the Fed’s board of governors expires in May, but his term on the board extends to January 2028. That means he will still be eligible to serve as chair of the Federal Open Market Committee, which determines its own leadership and sets the rates that Trump wants lowered.

In addition, whoever the next Fed chair is, a Trump loyalist or not, he or she must still work with the rest of the consensus-driven FOMC, where it’s rare to have even a few dissenters on a policy decision, Ed Yardeni, president of Yardeni Research, said in a note last week.

If a loyalist takes over and is too much of an outlier on monetary policy compared with the rest of the FOMC, then the chair could be outvoted.

“That would seriously weaken the power of the Fed chair and raise concerns about the internal conflict with the Fed,” Yardeni warned.