Fed watchdog report clears Powell of crimes, complicating Trump's removal push

Key points

• The Fed inspector general found no criminal violations or administrative misconduct in the headquarters renovation, despite a $1 billion cost overrun.
• President Trump could potentially seek removal of three Fed governors: Jerome Powell, Lisa Cook, and Michael Barr, but faces significant legal hurdles.
• The Supreme Court ruled that Lisa Cook must receive notice and a chance to respond before removal, allowing her to remain on the board during litigation.
• Former Fed General Counsel Scott Alvarez argues that prolonged litigation could keep targeted governors in their seats, complicating Trump's efforts to reshape the board.
• The Fed is scheduled to announce its interest-rate decision on Oct. 28, shortly before the Nov. 3 midterm election, adding political pressure to the situation.

Background

This dispute follows earlier conflicts between the White House and the Federal Reserve, including a June Supreme Court ruling that blocked Trump's attempt to remove Lisa Cook over mortgage allegations. In September, Trump criticized the Fed's first rate hike in three years, signaling ongoing tensions over central bank independence. The current renovation report adds to a series of legal and political challenges facing Fed leadership.

How outlets are covering it

CNBC emphasizes the legal hurdles Trump faces in removing Fed governors, noting that the inspector general report exonerates Powell of criminal misconduct. Politico highlights that Powell is likely to stay at the Fed until January 2028 due to the lack of closure from the administration. Both sources agree that Trump's efforts to reshape the Fed are complicated by legal procedures and the upcoming midterm election. The AP News secondary source, while containing technical noise, confirms the watchdog's finding of mismanagement but no crimes, aligning with the primary sources' focus on the lack of criminal basis for removal.

Why it matters

The outcome of these disputes could significantly impact Federal Reserve independence and future interest-rate decisions. If Trump successfully removes key governors, it may alter the Fed's policy direction, potentially affecting inflation and economic stability. The legal battles also set precedents for executive power over independent agencies, with implications for other government institutions.

What to watch

The Fed will announce its interest-rate decision on Oct. 28, followed by the Nov. 3 midterm election. The administration faces a deadline in the Cook case shortly after the election, with Judge Jia Cobb requesting a joint status report by Nov. 6. Trump may decide whether to pursue removal of Powell, Cook, or Barr, but legal challenges are expected to delay any outcomes.