[Reuters Breakingviews] Fighting the Fed means more than switching chairs

By Gabriel Rubin

WASHINGTON, July 14 (Reuters Breakingviews) - Gold-fringed real estate magnate Donald Trump is attacking someone else over a costly renovation. Improbably, it might be the most immediate threat to the Federal Reserve’s independence. As it pushes for lower interest rates, the White House is probing cost overruns in a $2.4 billion overhaul of the central bank’s Washington headquarters, looking specifically at Chair Jerome Powell’s involvement, adviser Kevin Hassett said on Sunday. It seems a flimsy ploy to bend or break his leadership after the Supreme Court ruled that he is protected from removal. The thing is, even if this gambit were successful, the Fed operates by multi-member consensus that will be yet harder to overwhelm.

Trump has made no secret of his antipathy for Powell, dubbing him “too late” for not lowering interest rates. Sidelining him has proved difficult, though: his term runs until May 2026, and the nation’s top court said in May that Fed leaders are insulated from arbitrary dismissal. Firing for cause, however, remains legally plausible. The agency’s costly renovations have sparked accusations that it is gilding its monetary palace with terrace gardens and apiaries. The central bank shot back in a report on Friday, pointing the blame at arduous lead and asbestos removal. "There are no new water features, there's no beehives, and there's no roof terrace gardens," Powell told senators in June.

This tactic isn’t entirely new. In 2014, Republicans attacked Consumer Financial Protection Bureau head Richard Cordray over a $145 million renovation of a mid-century Brutalist wreck that they compared to Dubai’s Burj Khalifa skyscraper. Again, conservatives opposed an agency’s actions - and, in the CFPB’s case, its existence. Cordray, though, ultimately just stepped down after Trump took office in 2017, before the Supreme Court ruled in 2020 that the president had the right to dismiss him at will.

Even if the renovations gambit again sputters, the administration’s pressure campaign is proliferating on multiple fronts. Trump continues to hammer the chairman to cut rates from their current range of 4.25% to 4.5%. The administration has considered naming a “shadow” Fed chair, though Hassett on Monday at least acknowledged the Fed’s independence.

The administration’s economic policy would emerge weaker from a battle. Even if Trump gets to install a more dovish chair, this person will have to contend with a 12-member, consensus-based committee that sets policy and may bristle at attacks on its independence, especially since its credibility is so crucial to market stability. Trump has conventional picks more amenable to his outlook – like current Governor Christopher Waller, perhaps – when Powell eventually leaves. A fight over choice government real estate might play to Trump's interests, but it won't change interest rates.

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CONTEXT NEWS

The White House is probing the cost of renovations to the Federal Reserve’s main building conducted under Chair Jerome Powell. If the review uncovers malfeasance, Powell could “have a lot to answer for,” economic adviser Kevin Hassett said on July 13.

The same day, Vice President JD Vance said that the Fed has been “asleep at the wheel” after failing to cut interest rates from their current range of 4.25% to 4.5%.

The Supreme Court in May ruled that the Fed’s governors enjoy greater protection from removal than other government appointees, because the central bank “is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.”

Fed holds steady amid pressure to cut