WASHINGTON—Anyone who recently completed a home improvement project that suffered from rising costs, shortages and delays is now a distinguished business: The Federal Reserve, the U.S. institution charged with controlling inflation, is also struggling to contain the expenses of his sumptuous excavations.
The central bank is in the midst of a long-running project to transform three adjoining office buildings overlooking the National Mall into a state-of-the-art campus. The price of the effort ballooned to nearly $2.5 billion from an estimate of $1.9 billion in 2019, an increase of about 34%.
Budget documents released late last year show the cost of the entire project ballooned due to “significant increases” in the cost of steel, cement, timber and other materials that ” far exceeds standard cost increases”.
Most of the overruns relate to the gutting and renovation of two buildings: Fed headquarters, completed in 1937 and named for Fed Chairman Marriner S. Eccles, and a nearby building known as the “FRB-East” for now. The Fed acquired this building, which opened in 1933, from the Department of the Interior five years ago. Renovations to both began last year and are expected to last until 2027.
Until then, the Fed’s top brass have decamped for a third building that overlooks its headquarters from the north: the William McChesney Martin Jr. Building. It opened in 1974 and reopened in late 2021 after a top-to-bottom renovation that includes bathroom door sensors for touchless opening and a pair of Italian bee hives on the roof.
Fed officials say their goal is to house the majority of board staff in offices closer to each other and reduce the central bank’s rented space in downtown Washington.
The end result will serve most of the 3,000 economists, lawyers and professionals who support the central bank’s seven-member board of governors, which set interest rates to manage economic growth and who oversee the national financial system.
The massive construction project has largely flown under the radar, which is unusual in a city where regulators sometimes encounter strong congressional protests over such facelifts. For the past decade, Republican lawmakers have pilloried the $145 million renovation of brutalist-style offices that house the Consumer Financial Protection Bureau near the White House.
In the 1990s, two Democratic senators who were unhappy with the Fed’s campaign to preempt inflation with steep rate hikes raised a stench on its budget, including the construction of a towering new headquarters for the regional Fed bank—there are 12 scattered across the country—in Dallas.
The Fed has been here before. Amid rising inflation in 1969, he delayed plans to build what eventually became the Martin Building, then at an estimated cost of over $30 million, and asked other banks Regional Feds across the country consider doing their part to combat high prices by postponing construction activity projects. “This was done to minimize competition for scarce goods and services during the current inflationary period,” the Fed said at the time.
New York Fed plans to construct a new building in lower Manhattan in the 1920s reached over $25 million, well above an initial estimate of $10 million. A banking regulator lamented in The New York Times at the time that the “luxurious and lavish appointments of marble and brass” would make “Solomon’s ancient temple quite cheap in comparison”.
This time, costs have also increased due to design changes required by local planners. While the Fed can move trillions with the click of a mouse, erecting a building in the District of Columbia is another matter.
“We have a built country and it’s hard to get zoning,” Fed Chairman Jerome Powell said last November. While he was talking about a source of higher home building costs, he might as well have been talking about the project in his own backyard.
The National Capital Planning Commission and U.S. Commission of Fine Arts, century-old government agencies that review proposals to build federal properties in the region, only approved Fed renovations after the central bank toned down some frills of design, in particular for the FRB – East Building.
Members of the fine arts commission, for example, in 2020 criticized the proposed addition of a five-storey “brilliantly shiny glass box” on FRB-East, saying it would look unsightly at night. and would run into an older, more modest depression. building. The Fed agreed to reduce the height and add a pattern of semi-opaque glass panels to make the addition more compatible with the original building. To make up for some of the lost space, the new plans have more square footage below ground level, which the Fed says drove the price up.
The Eccles Building, built in a “stripped classicism” style with white Georgia marble, was designed by French-Philadelphia architect Paul Philippe Cret after legislation backed by President Franklin D. Roosevelt removed the central bank of the Treasury Department. Its conference room, which features 26-foot-high ceilings, briefly housed American and British military advisers during World War II, as it was one of the largest air-conditioned rooms in the city.
Over time, the building had become dilapidated, say current and former staff members and policymakers. They described leaky ceilings, outdated electrical systems, and inefficient heating and cooling systems.
Recently completed renovations to the Martin Building have been plagued with delays. In 2015, the Fed fired the original architecture and engineering firm hired for the job for what an internal watchdog described as shoddy work. Costs rose again when workers had to remove more asbestos than expected.
For several years, these renovations were managed by Mr. Powell, who served as governor before becoming president in 2018. His signature adorns an exposed piece of a steel beam inside a top-floor cafeteria that offers a panoramic view of the DC skyline. In the 1990s, Fed Chairman Alan Greenspan hosted lawmakers, Supreme Court justices and reporters for an evening of July 4 fireworks viewing from an adjacent patio.
The new building has luxury amenities: the conference room where the Fed’s tariff-setting committee meets has a special tap with still, sparkling or chilled water, and the basement houses artwork from the Fed’s private collection, including Andy Warhol and Alexander Calder.
But the open office design has drawn grumbling from some Fed staff, including those who work with confidential banking data or other classified information.
Unlike other federal agencies, the Fed is not subject to annual funding from Congress and instead pays for its operations through interest it earns managing the country’s money supply, so its renovations have not required external approval from legislators.
The Fed is expected to post a loss this year for the first time in its 110-year history, however, because as it raises rates, it pays more interest to banks and other financial institutions on cash held in the bank. powerhouse that he will earn $8.3 trillion in securities and other assets he owns.
The Fed raised rates at the fastest pace last year since the early 1980s to fight inflation, which also hit 40-year highs. The appearance of a 10ft construction barrier around the Eccles Building last year has fueled speculation among some market watchers – mistakenly – that it was just another security measure being rolled out to fortify the central bank headquarters against public protests.
The Fed added a brief explanation of the construction project last fall to a long list of “frequently asked questions” on its website to avoid such confusion.
The Fed is open for business, she said, “and Federal Reserve operations are unaffected.”
Write to Andrew Ackerman at firstname.lastname@example.org and Nick Timiraos at Nick.Timiraos@wsj.com
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