Fed watchdog finds mismanagement, no crime in $2.4bn renovation

The Federal Reserve’s internal watchdog concluded that the central bank’s board broadly mismanaged a $2.4bn headquarters renovation but found no grounds for a criminal referral, according to a 120-page report released on Wednesday and reported by Theguardian.

The inspector general said the board failed to secure a comprehensive cost estimate at the start of the project and never fixed a maximum overall cost, a step that could have forced the contractor to absorb inflation, Theguardian reported. Prices spiked after construction began in 2022.

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Key facts

• The report said the board “repeatedly deviated” from its cost-management provisions and did not effectively manage and execute its contract, per Theguardian.
• Construction costs to renovate two Fed buildings more than doubled from an original $921m estimate in February 2020 to $2.018bn by December 2024, the report said.
• Work is expected to run until December 2027, well past the originally slated completion of mid-2024.
• The inspector general found no reasonable grounds to believe a federal criminal law violation had occurred requiring a referral to the attorney general.
• The review was led by Fed inspector general Michael Horowitz, who was appointed by Powell in June 2025 and who was asked to conduct the review a month later, Cnbc reported.

No perjury finding on Powell’s testimony

The report was also read as an indirect answer to claims that former Fed chair Jerome Powell perjured himself in Senate testimony about the project in June 2025. The inspector general’s office did not set out to assess that claim, but reviewed materials related to the testimony and made no claims of misconduct about it, Cnbc reported.

The two outlets differ slightly on the date of the testimony: Theguardian refers to testimony before a Senate committee, while Cnbc specifies June 2025. Theguardian says Powell requested the review last year; Cnbc dates the request to a month after Horowitz’s June 2025 appointment.

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The watchdog’s report also pushed back on some of the project’s most publicised criticism. Water fountains, private elevators and marble facades were not significant drivers of the excess costs, it found. A design change by the Fed in 2023, from mostly open workspace to mostly closed office space, caused a significant delay in the design and delayed the setting of a cost ceiling.

Cnbc reported that the board was not involved in day-to-day decisions about the project, and that the report said such delegation would be expected. The Fed’s Board of Governors declined to comment on the report.

Legal fight that preceded the review

The Department of Justice opened a criminal investigation into Powell and the Fed over the renovation in December, and U.S. Attorney for the District of Columbia Jeanine Pirro quashed subpoenas in March, per Cnbc. Theguardian reported that the investigation was dropped in April after a judge quashed Pirro’s subpoenas, and that Pirro said she would await the inspector general’s findings before deciding on further action.

Cnbc reported that Judge James E. Boasberg of the D.C. Circuit found evidence the subpoenas were intended to harass and pressure Powell over interest rates, but no evidence of wrongdoing by him. Pirro said in April she would not hesitate to restart a criminal investigation if the facts warranted, and she and the White House did not immediately respond to requests for comment on the report.

Why it matters

The findings remove one of the most visible lines of attack against Powell, whom President Donald Trump and Republican allies had accused of mismanaging the renovation and misleading Congress. Trump had criticised what he called a hostile Fed board over interest rates, even though a recent rate increase was supported by his own appointee as chair, Kevin Warsh, according to Cnbc.

The report shifts some of the pressure onto the Fed’s internal processes rather than onto individual conduct. Cnbc reported that the publication includes a letter from Warsh welcoming the findings and saying the Fed will adopt the report’s recommendations; Warsh also said he plans a full audit of the renovation and has asked the General Services Administration to serve as project executive going forward. Powell remains on the Fed’s board as a governor with a term ending in January 2028.

What to watch

Cnbc reported that the Department of Justice could reopen its investigation based on the new findings, or Warsh could ask Powell to resign. Pirro has said she is awaiting the report’s conclusions before deciding whether to act.

Written by

Benjamin

Benjamin Carter covers business, finance, and the stock market for StockPil, focusing on the trends and data that matter to everyday investors.

Sources: The Guardian, Cnbc