President Donald Trump is considering actions against three Federal Reserve governors following a watchdog report released on Wednesday, which found no basis for criminal charges related to the Fed's costly renovations to its headquarters. The report, issued by the Fed's inspector general, indicated that while there were managerial issues leading to a billion-dollar increase in renovation costs, it did not identify any administrative misconduct warranting criminal referral.
Trump's focus on the renovation spending, combined with disputes involving governors Lisa Cook and Michael Barr, suggests he may seek to remove as many as three members of the Fed's seven-member board. However, recent court rulings indicate that any such attempts may encounter significant legal challenges. Legal actions could take months and might lead to the governors delaying their departure from the Fed, as Powell has already done.
The Federal Reserve is set to announce its latest interest-rate decision on October 28, shortly before the November 3 midterm elections. The administration faces a deadline in the Cook case shortly after the elections. If the administration proceeds against any of the governors, it may have unintended consequences, according to Scott Alvarez, a former Fed general counsel, who noted that all three governors have incentives to litigate and remain in their positions.
Trump criticized Powell, stating, "Powell is a disaster," when asked about the inspector general's findings. He appointed Powell during his first term but has since expressed dissatisfaction with his performance. Trump has requested Attorney General Todd Blanche to review the inspector general's report, while the U.S. attorney for the District of Columbia, Jeanine Pirro, is also examining the report.
The inspector general's report highlighted managerial problems that led to increased renovation costs but did not find evidence of misconduct. Alvarez commented that the report likely would not provide sufficient grounds for a court to remove Powell for cause, as it did not identify any wrongdoing on his part.
The report noted that the Fed's bureaucratic disorganization contributed to overspending on the renovation project, but it does not directly attribute the cost overruns to Powell or any individual governor. Powell's term as a governor extends through January 2028, and he has indicated he will remain until the legal issues are resolved.
In June, the Supreme Court blocked Trump's attempt to remove Cook, stating she was entitled to notice of the allegations against her and a chance to respond. The administration would need to demonstrate to the courts that it has met the legal threshold for removal, which may require further Supreme Court review.
Currently, the Cook case is pending before U.S. District Court Judge Jia Cobb, who has requested a joint status report by November 6 regarding the litigation's progression. An external investigation into the Fed's handling of the 2023 failure of Silicon Valley Bank is also ongoing, with a preliminary report indicating that Fed supervisors should have recognized the risks to the bank prior to its failure. The White House has attributed blame for the incident to Barr, although there may not be sufficient evidence to justify his removal.