The president said he hopes the pay freeze will spark a bipartisan conversation with Republicans in Congress, but this move speaks more to voters than members of Congress.
Obama said small businesses and families are tightening their belts, so the government should too.
"Today I am proposing a two-year pay freeze for all civilian federal workers. This would save $2 billion over the rest of this fiscal year and $28 billion in cumulative savings over the next five years," said Obama.
The president said the pay freeze won't apply to military forces, but it will for everyone else who works for the federal government.
"The doctors and nurses who car for our veterans; scientists who search for better treatments and cures, men and women who care for our national parks and secure our borders and our skies..." said Obama.
Outside the federal building in San Francisco, reaction was mixed. Some said "Obama should get his priorities straight," some said they didn't mind making a little contribution, and other said it seemed fair to cut back.
The president said there will be more tough decisions that will require bipartisan cooperation.
"We're going to have to budget on some deeply held positions and compromise for the good of the country," said Obama.
But ABC7's political analyst Bruce Cain, Ph.D., believes the president is maneuvering not for GOP cooperation in Congress, but for middle of the road voters.
"He's read the signals and like Clinton before him, he's decided that the best thing to do is tack back in the middle," said Cain. "So, I think the strategy is to find measures like this that have support of the public, particularly the center of the spectrum, and dare the Republicans to vote no."
Cain points out it was those voters in the middle of the political spectrum that gave Obama the White House. Those are the same voters who didn't turn out in the most recent election and cost Democrats dearly, and the same voters the president will need to win a second term.