• The Federal Reserve's inspector general found no basis for criminal referral or administrative misconduct in the Fed's $2.5 billion headquarters renovation.
  • The 120-page review identified serious project-management and cost-control failures that pushed costs from $1.9 billion to nearly $2.5 billion.
  • New Fed Chair Kevin Warsh has vowed to implement reforms, shifting oversight to the General Services Administration and ordering a full audit.

No Criminal Conduct, But Serious Mismanagement

The Federal Reserve's internal watchdog has concluded that the central bank's multi-billion-dollar renovation of its Washington headquarters did not warrant a criminal referral, according to a 120-page report released on Thursday. The review found no reasonable basis for criminal charges and did not substantiate allegations of administrative misconduct, including claims that specific architectural features violated approved plans or drove cost overruns.

The report nonetheless delivered a scathing assessment of the project's management, citing weak governance, inadequate cost-estimation practices, and ineffective contract oversight. Most notably, the Fed had not established a guaranteed maximum price even after four years of construction and after awarding nearly all construction work. The inspector general also determined that while post-pandemic inflation contributed to cost increases, the overruns exceeded what inflation alone could explain.

The findings likely remove the principal remaining legal cloud surrounding former Chair Jerome Powell, who remains a Fed governor after Kevin Warsh succeeded him as chair in May. Powell had requested the inspector general's review in 2025, and a separate Justice Department inquiry into his congressional testimony was closed in April 2026 after a federal judge found "essentially zero evidence" of a crime.

Warsh Moves Quickly to Reform

New Fed Chair Kevin Warsh has said the institution will adopt the inspector general's recommendations. He has moved project oversight to the General Services Administration (GSA) and called for a full audit to identify any work paid for but not received, potentially seeking credits or reimbursement where justified.

"The report confirms what we knew: the project was mismanaged, but there was no criminality," Warsh said in a statement. "We are taking immediate steps to ensure better oversight and accountability going forward."

The renovation, approved in 2017, aims to modernize the historic Marriner S. Eccles Building and the 1951 Constitution Avenue building, replacing aging HVAC, electrical, plumbing, and fire-safety systems; remediating asbestos and lead; and meeting security, accessibility, and modern-workplace requirements. Construction began in 2022 and is expected to complete in 2027.

The project's cost has escalated from an initial estimate of about $1.9 billion to a current board-approved budget of $2.46 billion. The Fed has attributed much of the increase to post-pandemic increases in materials, equipment, and labor costs, as well as changing designs and more asbestos than anticipated.

Political Ramifications and Market Impact

The renovation became politically explosive because it overlapped with President Donald Trump's repeated criticism of Powell for not lowering interest rates quickly enough. Trump and other critics called the project excessive and challenged Powell's handling of its cost and scope. The issue also affected Senate politics: Senator Thom Tillis had said he would withhold support for Fed nominees until the Powell investigation was dropped, contributing to the tense backdrop for Warsh's confirmation.

The inspector general's conclusion validates the central claim from Powell and the Fed: project management was flawed, but criminality was not established. At the same time, the detailed management criticism gives fiscal conservatives and Fed critics a substantive basis to demand stronger procurement discipline.

Markets are unlikely to price this report as a monetary-policy event. However, it may reduce uncertainty about governance at the Fed and lower the chance that an unresolved investigation becomes a new channel for political pressure on the central bank.

The direct macroeconomic impact is limited: even a roughly $2.5 billion project is too small to materially affect U.S. GDP, inflation, or monetary-policy capacity. Its significance is primarily institutional and symbolic.

A Fed spokesperson declined to comment beyond the inspector general's report. The GSA did not immediately respond to a request for comment.

Correction: A previous version of this article misstated the timing of the Justice Department's closure of its inquiry. It was closed in April 2026, not April 2025.