President Donald Trump could pursue the removal of three Federal Reserve governors — Jerome Powell, Lisa Cook and Michael Barr — after a watchdog report on the Fed's headquarters renovation found no criminal violations. Recent court rulings suggest any removal attempt would face significant legal hurdles, and a former Fed general counsel says prolonged litigation could keep all three in their seats.
Inspector general clears Powell of wrongdoing
An inspector general report released Wednesday found no evidence of administrative misconduct and nothing meriting a criminal referral over the Fed's headquarters renovation, even though the project's costs jumped by about $1 billion. The report does not pin the overruns on Powell or any individual governor, instead citing failures in project management and the board's oversight systems.
Trump rejected the findings anyway, calling Powell a disaster and saying he should not remain on the board. He asked Attorney General Todd Blanche to review the report, and the U.S. attorney for the District of Columbia is also reviewing it.
Former Fed general counsel Scott Alvarez said the renovation report likely would not clear the bar for removing Powell for cause, since it exonerates him criminally and finds no administrative misconduct.
Cook and Barr face separate disputes
Combined with disputes involving governors Lisa Cook and Michael Barr, Trump could potentially seek the removal of as many as three of the Fed's seven board members. The Supreme Court in June blocked Trump's earlier attempt to remove Cook over mortgage-application allegations, ruling she was owed notice and a chance to respond before any removal. As of August, Cook has received that notice, removing one obstacle to her potential removal, though the administration would still need to show courts it has met the threshold for cause.
An outside investigation into the Fed's handling of the 2023 Silicon Valley Bank failure is also ongoing. A preliminary report by Starling Advisory Group faulted the Fed's bank supervisors but does not assign responsibility to Barr personally.
Litigation could blunt Trump's agenda
Any legal action could take months and may instead persuade targeted governors to postpone leaving the Fed, as Powell has already done. Powell can stay on as a governor through January 2028. According to CNBC: "All have an incentive to litigate and stay", Alvarez said, warning that if all three remain on the board through the courts, Trump will have only hurt his own agenda.
The Fed is scheduled to announce its next interest rate decision on Oct. 28, days before the Nov. 3 midterm election, with the Cook litigation facing a deadline shortly after the vote.
Source: CNBC
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