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

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