The Federal Reserve's internal watchdog released an investigative report on the renovation of its Washington headquarters, concluding that the project involved no federal criminal violations, while also identifying multiple management deficiencies as the primary cause of significant cost overruns. The US$2.4 billion renovation had previously become one of the flashpoints driving persistent tensions between the Federal Reserve and the Trump administration.
The Office of Inspector General (OIG) said in a report released Wednesday that throughout its assessment, it found no reasonable basis to conclude that federal criminal laws were violated, no referral to the US Attorney General was warranted, and no administrative violations were identified.
The report simultaneously listed a series of management deficiencies, noting that these issues collectively drove the project's cost from an initial budget of US$1.3 billion in 2020 to the current US$2.4 billion.
In response, Federal Reserve Chair Warsh said in a reply letter that the Fed would implement the report's recommendations and bring in the General Services Administration (GSA) to take over the project, reporting to the Fed's Board of Governors and to Warsh himself. Warsh also said the Fed would separately hire an independent audit firm to review all costs appropriated to date.
No Evidence of Crimes, but Clear Management Deficiencies
The report showed that during the assessment, the Office of Inspector General found no indications of criminal violations requiring referral to the US Attorney General under the Inspector General Act, nor any administrative violations. However, the report also noted multiple management failures at the Fed's Board of Governors and put forward corresponding remedial recommendations.
Specifically, after the completion of a previous inspector general review of the William McChesney Martin building renovation project, the Board failed to implement the recommendation made at that time to "set a clear cost cap," and also did not require the submission of construction cost estimates.
The report further noted that it was not until July of this year — four years after the project began and after bidding had already been completed — that the Fed still had not established a guaranteed maximum price cap. In addition, some work saw significant cost increases due to a lack of competitive bidding, and the internal governance mechanism was judged incapable of managing a project of such scale and complexity.
The report also cited design changes, construction site conditions, and inflation as other factors driving up costs, explicitly stating that "inflation was clearly one of the important factors behind the cost increases faced by the Board."
The report also clarified that design elements such as marble finishes, water features, or rooftop garden terraces were not the main drivers of the cost surge.
Remediation Plan: GSA Takeover, Independent Audit Intervention
In his reply letter to Inspector General Michael Horowitz, Warsh said the lessons revealed by the report and its related recommendations "have lasting value for the Board's successors." Horowitz was appointed by former Chair Powell in June 2025.
Under the remediation arrangements, the GSA will formally step in to take over the project, reporting to the Fed's Board of Governors and to Warsh; the Fed will also hire an independent audit firm to conduct a comprehensive review of all appropriated costs.
The report's recommendations include: taking measures in subsequent projects to ensure optimal value for money, establishing success metrics for project cost and schedule, and setting up a dedicated oversight body to continuously track cost control and schedule execution.
Political Turmoil: From Congressional Criticism to Judicial Investigation
The renovation project involves two historic Federal Reserve buildings — the Marriner S. Eccles building constructed in 1937 and an adjacent federal building constructed in 1931. The Fed has said the renovation is aimed at modernizing aging buildings and reducing long-term operating costs through consolidated operations.
However, the project continued to escalate into a political issue throughout 2025. Trump and Republican lawmakers accused the Fed of excessive spending and extravagant renovation designs, and the criticism evolved into a criminal investigation targeting former Chair Powell himself.
In congressional testimony, Powell explicitly denied all allegations of extravagance, saying "there is no VIP dining room, no new marble, no special elevators, no new water features, no beehives, and no rooftop garden."
According to previous media reports, in January of this year, Powell disclosed that the Fed had received a grand jury subpoena from the Justice Department and faced the threat of criminal prosecution. In written and video statements, Powell pointed directly to the investigation as political retaliation for the Fed's refusal to cut rates as Trump wanted, saying it "should be examined within the broader context of sustained pressure from the government."
US Attorney for the District of Columbia Jeanine Pirro withdrew the investigation in April of this year amid opposition from lawmakers of both parties, but said at the same time that she would closely monitor the conclusions of the inspector general's report and did not rule out the possibility of reopening the investigation. This inspector general investigation was proactively initiated by Powell in July 2025 in response to outside criticism.
It is worth noting that the aforementioned political turmoil also impacted the Fed's leadership transition — Warsh's confirmation hearing had been stalled due to obstruction by Republican lawmakers and only moved forward after Pirro announced the withdrawal of the investigation.
Just days after the announcement of the investigation's withdrawal, Powell declared that he would break with convention and remain at the Fed as a governor after his term as chair expires in May of this year, stating that "I will not leave the Board until the investigation is brought to a transparent and conclusive end."