President Obama, on November 29th, announced a Salary Cost of Living Freeze for Federal Jobs. It is still being debated in the media if it is a good thing to control the deficit, if it will have a negative impact on Federal hiring/retention or if it will even work.
Controlling the deficit: This is probably in response to the deficit talks and the need to negotiate the budget.
Negative impact on Federal hiring: Currently, due to the economy, Federal job postings can have hundreds, if not thousands of people applying for each job. Since non-Federal job salaries have also fallen and the unemployment rate is NOT falling (and will probably not fall significantly for the foreseeable future), this will not have an effect currently on people applying for jobs. As far as hiring, there still is flexibility in the starting salary within a range – so hiring managers can hire someone at a higher step within a range to bring someone onboard.
Negative effect on Federal retention: For the short term, probably not. There are 10 steps in each GS level for the Federal government and they can give folks hired in the government a step raise. In addition, this order does not impact bonuses.
Will it work? I am not sure if freezing cost of living raises will work – due to the flexibility within agencies to give step raises within grades.