Why the White House is attacking Jerome Powell over the 'Taj Mahal on the National Mall'
The renovation of the Federal Reserve’s headquarters is under scrutiny once again after federal prosecutors launched a criminal investigation into Chairman Jerome Powell over his testimony to Congress about the project.
Powell said in a statement Sunday that the investigation is part of the Trump administration’s pressure campaign against the independent institution to lower interest rates. The Fed did not provide any additional comment beyond Powell's statement.
In a statement to ABC News, a spokesperson for Attorney General Pam Bondi said, "The Attorney General has instructed her U.S. Attorneys to prioritize investigating any abuse of taxpayer dollars."
What to know about the project
The White House has accused Powell of bungling a yearslong renovation of the Fed's headquarters. The renovation was first approved in 2017 during President Donald Trump's first term -- and before he appointed Powell as Fed chairman -- and has come under criticism amid Trump's frustrations with Powell over interest rates.
Powell, a Republican, was renominated by Biden for a second four-year term, which expires this year.
According to the Fed, the headquarters and a nearby office building included in the project have not been "comprehensively renovated" since the 1930s.
The buildings require "complete replacement" of electrical, plumbing, fire suppression and HVAC systems, "major structural work" to bring them up to code, and removal of "asbestos and lead contamination," according to the Fed's website.
Both buildings are historic sites on the National Mall, and the work aims to preserve as much of the original buildings as possible, Powell wrote in a letter to the Senate Banking Committee obtained by ABC News.
What about the renovation project's costs?
Last summer, the White House accused Powell of allowing the project's cost to rise to $2.5 billion, several hundred million dollars more than the previously projected $2.1 billion. In his letter to the Senate, Powell said the costs have increased over time for various reasons: "These factors include differences over time between original estimates and actual costs of materials, equipment, and labor, and unforeseen conditions in the properties, such as more asbestos than anticipated, toxic contamination in the soil, and a higher-than expected water table."
"Construction involving the preservation of historic spaces requires specialized processes and methods, which are generally more complex and have increased costs compared with new construction or renovation of spaces that are not historically significant or located on the National Mall," he wrote.
In 2023, The Wall Street Journal reported that the cost of the project increased due to, in part, the rising costs of steel, cement, wood and other materials.
Additionally, construction in Washington must abide by height restrictions, to keep buildings below the height of the Capitol. This can force more construction below ground, which can be more expensive.
The renovation of the Capitol Visitors Center, to modernize and update the three-level structure under the Capitol, cost more than $600 million after initially expected to cost $71 million.
Renovations to the Smithsonian Air and Space Museum on the Mall, which initially were projected to cost $250 million, according to the Washington Post, are expected to end up closer to $1 billion, including $250 million in private investments.
In 2016, then-Smithsonian Secretary David Skorton told Congress it would be more expensive to tear down the museum and replace it, according to the Post.
A local development executive who is familiar with large-scale, D.C.-area public and private construction projects and asked not to be identified told ABC News it is "not uncommon" for building costs to increase by 30 to 60% after the COVID-19 pandemic due to a combination of inflation, supply chain challenges and labor market conditions.
The Fed has said that over time, the project will help the agency reduce costs by centralizing its workforce and reducing its need to lease commercial office building space to house the Fed's 3,000 employees.
The Fed has also pared back parts of the project, including the renovation of a third building.
"There are no new water features, there's no beehives, and there's no roof terrace gardens," Powell said in testimony to the Senate Banking Committee last week, pushing back on claims about some aspects of the project made by Republicans. "We do take seriously our responsibility as stewards of the public's money."
Powell this week also asked the Federal Reserve Board's inspector general to review the project and its budget.
Who's paying for the renovation?
The Fed isn't directly funded by taxpayers but is self-financed through proceeds from interest payments on bonds and fees from banks, with revenue returned to the Treasury.
Can Powell be fired over the project?
Trump is empowered to fire the Fed chair for "cause," which could explain the new focus on this project by the Trump administration -- and the suggestion that Powell misled Congress under oath about its cost -- even as Trump continues to criticize Powell over interest rates.
The Supreme Court in May gave the Trump administration a green light to fire the heads of two independent labor boards but drew a distinction between those and the Fed, which it called "a uniquely structured, quasi-private entity."
White House Budget Director Russell Vought called Powell's handling of the project "another example of Powell's mismanagement of the Fed."
He also sent a letter to Powell with "serious questions that now require additional oversight" from the Office of Management and Budget and the National Capital Planning Commission, which has oversight of Washington construction projects.
In a letter replying to Vought obtained by ABC News, Powell addressed several claims made about the project, saying there are "No VIP dining rooms" or "VIP elevators" in the renovation, but that historic elevators and multipurpose rooms are being refurbished and updated, and in the case of one elevator, made more accessible for people with disabilities. He also said that while new water features were in the board's initial design, those were eliminated.
In July, Rep. Anna Paulina Luna, R-Fla., made a criminal referral to the Justice Department over Powell’s testimony to the Senate about elements of the project.
Last year, Trump removed the Biden administration's appointees to the commission and replaced them with three of his senior aides: Staff Secretary Will Scharf, Deputy Chief of Staff James Blair and OMB aide Stuart Levenbach.
Blair has raised questions about the cost of the project on social media, referring to the construction as "Taj Mahal on the National Mall."
Asked Thursday if the project was being used as a "pretext" to fire Powell over interest rates, Vought said Trump "is a builder who is outraged about a cost overrun on the building."
There's a lot of policy debates that are going on with regard to the Fed. We have policy opinions, and [Trump] said recently that he's not likely to make a change there," Vought said. "We're going to get to the bottom of this and see where the conversation goes."
Peter Conti-Brown, a professor at the University of Pennsylvania's Wharton School who has written about the Federal Reserve, suggested that concerns about the Fed's renovations and possible mismanagement would not be sufficient justification for Trump to fire Powell for "cause.""If this were a basis for the removal of federal officers so protected, there would be few who would be protected at all: budget overruns are hardly an unusual occurrence," he told ABC News.
"This is all a pretext to motivate the actual reason for seeking Powell's removal. President Trump wants interest rates to be lower because he believes lower interest rates will favor him personally and politically. He has lashed out in so many different ways, not only in this term but in his previous administration, at Powell and the Fed more broadly," Conti-Brown added.
"It is obvious that invoking the renovations project is pretextual, and that he is motivated by personal animus against chair Powell. Both of these factors, pretext and animus, will weigh heavily in any subsequent litigation against President Trump in favor of Jay Powell," he said.
Next week, the Supreme Court is scheduled to hear arguments in the case over Trump’s efforts to fire Federal Reserve Governor Lisa Cook.
Trump attempted to fire Cook over claims of mortgage fraud by a member of his administration. When Cook sought to challenge her dismissal, a federal judge ruled against the Trump administration, writing that the claims did not constitute "cause" for her removal.
