for comparison, over the four years following the trough of the 2001 recession, total government employment rose by more than 500, 000 jobs. most recently, the strengthening economy has improved the budgetary outlooks of most state and local governments, leading them to reduce their pace of fiscal tightening. at the same time, though, fiscal policy at the federal level has become significantly more restrictive. in particular, the expiration of the payroll tax cut, the enactment of tax increases, the effects of the budget caps on discretionary spending, the onset of the sequestration, and the declines in defense spending for overseas military operations are expected, collectively, to exert a substantial drag on the economy this year. the congressional budget office ( cbo ) estimates that the deficit reduction policies in current law will slow the pace of real gdp growth by about 1 – 1 / 2 percentage points during 2013, relative to what it would have been otherwise. 1 in present circumstances, with short - term interest rates already close to zero, monetary policy does not have the capacity to fully offset an economic headwind of this magnitude. although near - term fiscal restraint has increased, much less has been done to address the federal government ’ s longer - term fiscal imbalances. indeed, the cbo projects that, under current policies, the federal deficit and debt as a percentage of gdp will begin rising again in the latter part of this decade and move sharply upward thereafter, in large part reflecting the aging of our society and projected increases in health - care costs, along with mounting debt service payments. to promote economic growth and stability in the longer term, it will be essential for fiscal policymakers to put the federal budget on a sustainable long - run path. importantly, the objectives of effectively addressing longer - term fiscal imbalances and of minimizing the near - term fiscal headwinds facing the economic recovery are not incompatible. to achieve both goals simultaneously, the congress and the administration could consider replacing some of the near - term fiscal restraint now in law with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run. see congressional budget office ( 2013 ), the budget and economic outlook : fiscal years 2013 to 2023 ( washington : cbo, february ). bis central bankers ’ speeches monetary policy with unemployment well above normal levels and inflation subdued, fostering our congressionally mandated objectives of maximum employment and price stability requires a highly accommodative monetary policy. normally, the committee

would provide policy accommodation by reducing its target for the federal funds rate, thus putting downward pressure on interest rates generally. however, the federal funds rate and other short - term money market rates have been close to zero since late 2008, so the committee has had to use other policy tools. the first of these alternative tools is “ forward guidance ” about the fomc ’ s likely future target for the federal funds rate. since december, the committee ’ s postmeeting statement has indicated that its current target range for the federal funds rate, 0 to 1 / 4 percent, will be appropriate “ at least as long as the unemployment rate remains above 6 – 1 / 2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee ’ s 2 percent longer - run goal, and longer - term inflation expectations continue to be well anchored. ” this guidance underscores the committee ’ s intention to maintain highly accommodative monetary policy as long as needed to support continued progress toward maximum employment and price stability. the second policy tool now in use is large - scale purchases of longer - term treasury securities and agency mortgage - backed securities ( mbs ). these purchases put downward pressure on longer - term interest rates, including mortgage rates. for some months, the fomc has been buying longer - term treasury securities at a pace of $ 45 billion per month and agency mbs at a pace of $ 40 billion per month. the committee has said that it will continue its securities purchases until the outlook for the labor market has improved substantially in a context of price stability. the committee also has stated that in determining the size, pace, and composition of its asset purchases, it will take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives. at its most recent meeting, the committee made clear that it is prepared to increase or reduce the pace of its asset purchases to ensure that the stance of monetary policy remains appropriate as the outlook for the labor market or inflation changes. accordingly, in considering whether a recalibration of the pace of its purchases is warranted, the committee will continue to assess the degree of progress made toward its objectives in light of incoming information. the committee also reiterated, consistent with its forward guidance regarding the federal funds rate, that it expects a highly accommodative stance of monetary policy to remain appropriate for a considerable time after the asset purchase program