Federal Reserve's $2.5 Billion Renovation: Suspicious or Not?

Yesterday, in a historically unprecedented move, Fed Chair Jerome Powell directly addressed the public in a video statement regarding the Department of Justice’s new investigation into the central bank’s renovations of a historic government building complex in Washington, D.C.

Fed Chair Powell Breaks Tradition With Direct Video Statement to Public In Defense Of Building Renos and Monetary Policy Agenda

Speaking in a video posted online, Powell addressed the DOJ’s serving of grand jury subpoenas to him in relation to the Federal Reserve’s $2.5 billion renovation of the Marriner S. Eccles Federal Reserve Building and another Fed office on Constitution Avenue, which is part of the broader headquarters complex.

The video statement was a clear break from tradition, given that previous Fed Chairs virtually never directly engaged with the Executive Branch or the public, speaking only through technical reports, press conferences after policy meetings, and Congressional testimony.

Chair Paul Volcker, for example, never addressed the nation to defend himself, even after raising interest rates to 20% and facing the “Tractorcade” – a massive group of farmers on tractors driving through D.C. in protest of the foreclosure of rural properties due to the rate hike.

The probe into Powell follows his testimony on the matter in June, which prompted criticism from Republican lawmakers. Rep. Anna Paulina Luna alleged that Powell downplayed the scope and cost overruns and denied certain features that may have appeared in earlier planning documents, including claims about luxury elements or additions.

President Trump also met with Powell on camera at the building’s construction site – a meeting that was noticeably tense and awkward – essentially interrogating the Fed Chair about the project.

In his statement, the Fed Chair maintained that the DOJ’s probe had little to do with the building renovations and everything to do with the Fed’s monetary policy not aligning with the Trump administration’s desire for lower interest rates.

Trump has frequently referred to the Fed Chair as “Jerome Too Late Powell,” implying that the Fed Funds Rate has been “too late” in coming down.

Said Powell in his statement:

“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress’s oversight role; the Fed through testimony and other public disclosures made every effort to keep Congress informed about the renovation project. Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.”

As for the renovations, which were originally budgeted at $1.9 billion before being bumped up to $2.5 billion, the number does seem exceptionally high, but it isn’t necessarily impossible for a project of its scope.

The project involves roughly 1 million square feet of space in downtown D.C., and the Fed has cited several reasons for its price tag, including asbestos removal, high security costs, historical preservation costs, and the rise in inflation since the project began.

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To give a sense of scale, the redevelopment of St. Elizabeth’s Campus for the Department of Homeland Security, also in D.C, has a projected cost of over $4.4 billion.

The UN Headquarters in New York, completed in 2014, cost $2.15 billion, which is significantly more in today’s money.

The rift between the Federal Reserve and the Executive Branch and the potential implications of a potential loss of Fed independence have coincided with all-time high prices in gold, silver, several other precious metals, the S&P 500, and the Dow Jones.

FAQ 🏦

• Why is the DOJ investigating Fed Chair Jerome Powell?
  The DOJ is probing whether Powell misled Congress about the cost and scope of the Federal Reserve’s $2.5 billion renovation project in Washington, D.C.
• What building is at the center of the Federal Reserve renovation controversy?
  The investigation focuses on renovations to the historic Marriner S. Eccles Federal Reserve Building and an adjacent Fed office on Constitution Avenue.
• Why did Jerome Powell release a direct video statement to the public?
  Powell broke with Federal Reserve tradition to publicly defend himself, arguing the probe is retaliation for the Fed’s independent interest rate policy rather than the building renovations.
• Why does this investigation matter for markets and monetary policy?
  The probe has raised concerns about Federal Reserve independence, coinciding with record highs in gold prices and major U.S. stock indices.