Fed Inspector General Clears Central Bank of Legal Violations in $2.5B Renovation Scandal

The Federal Reserve’s inspector general released a 121-page report on Wednesday concluding that the central bank’s multibillion-dollar headquarters renovation did not violate federal law, rejecting President Donald Trump’s characterization of the project as “disgraceful.” While the investigation found no criminal wrongdoing or administrative misconduct, it criticized the Fed for inadequate project management that significantly drove up costs.

“At no point during our evaluation did we find reasonable grounds to believe that a violation of federal criminal law had occurred requiring a referral to the U.S. Attorney General,” the report stated. Michael Horowitz, the inspector general, added that although “deficiencies in the management of the renovation project” were identified, his office did not find evidence of administrative misconduct.

The inquiry was initiated at the request of then-Fed Chair Jerome Powell in July 2025 and followed more than a year of internal review. The project’s total cost has escalated from an initial estimate of $1.9 billion to nearly $2.5 billion, with completion now targeted for 2027. The White House had previously complained that certain design elements, including rooftop terrace gardens and VIP dining rooms, were ostentatious and deviated from approved plans. However, Horowitz concluded that features such as marble usage, skylights, and a private elevator for the chairman did not materially contribute to the cost overruns.

The report identified four primary drivers behind the budget surge and issued seven recommendations for improvement. Key findings included the failure to obtain a construction cost estimate from the general contractor and the absence of a stated cost limit at the project’s outset. Internal governance was deemed insufficient for managing a project of this scale. While Fed officials attributed much of the increased spending to inflation, the inspector general found that cost overruns exceeded inflation rates. The Board of Governors failed to provide a detailed analysis of inflation’s impact, offering only a general economic assessment that noted broader indices might be misleading for specific projects.

This investigation concludes a turbulent period involving legal and political scrutiny. In January, a separate Justice Department probe was announced after Powell revealed that the Fed had received grand jury subpoenas related to his June 2025 testimony before the Banking Committee. D.C. U.S. Attorney Jeanine Pirro issued the subpoenas, which were later quashed by a federal judge who determined they were a pretext to pressure Powell into lowering interest rates or resigning. Pirro subsequently ended the criminal investigation in April, clearing the path for President Trump’s nominee, Kevin Warsh, to be confirmed as Fed chair.

Warsh, who has now assumed leadership of the central bank, received a copy of the inspector general’s report. On Tuesday, he wrote to Horowitz announcing that the General Services Administration would take over oversight of the renovation project, reporting directly to the Board of Governors and Warsh. Warsh also stated that the Fed would initiate a full audit to determine the value of any services not rendered and pursue reimbursement for work that was paid for but not performed.

Former Fed Housing Finance Agency head Bill Pulte had previously urged Congress to investigate Powell, alleging deceptive testimony regarding the renovations, though he provided no evidence to support the claims. The inspector general reviewed Powell’s testimony and found no criminal wrongdoing.

When reached for comment, the Federal Reserve declined to respond beyond Warsh’s letter. Pirro told CBS News she would review the new report, and her office has been asked whether she plans to reopen any criminal investigations.