The decisions made by central bankers are referred to as hawks and doves. Central banks determine national interest rates through monetary policy and the extent of quantitative easing through the purchase of government bonds.
Hawks have a stronger confidence that reducing inflation should come first. Doves consider economic growth to be more important than inflationary concerns.
What is A Hawk?
A policymaker or advisor who is primarily concerned with the possible influence of interest rates as they relate to fiscal policy is known as an inflation hawk.
Hawks are thought to be willing to allow interest rates to increase in order to control inflation. In other words, hawks are more concerned with the possibility of recessionary pressure brought on by high inflation rates than they are with economic growth.
Although the term “hawk” is used in various contexts, this article only describes the most typical one. In each case, it represents a person who is intensely concerned with a specific facet of a broader goal or activity. A budget hawk, for instance, is concerned with the government budget, much as a general hawk (inflation hawk) is concerned with interest rates.
The following are some terms that might be used to describe a hawkish monetary policy:
- Strong economic growth
- Increasing inflation
- Reduced balance sheet
- Monetary policy restrictions
- Increasing interest rates
The use of terms like “increasing inflation”, “higher interest rates,” and “strong economic growth” generally hints at hawkish monetary policy.
What is A Dove?
Dovish refers to the contrary. Dovish central bankers are those who advocate for lowering interest rates or stepping up quantitative easing in order to boost the economy.
A central banker is considered dovish about the economy if they are pessimistic about economic growth and anticipate that inflation will fall or turn into deflation. They communicate this to the market through predictions or forward guidance.
The following are some terms that might be used to describe dovish monetary policy:
- Slow economic growth
- decreasing/deflationary inflation (negative inflation)
- Increasing the balance sheet
- Monetary policy loosening
- Reduced interest rates
Hawks VS. Doves
The doves acknowledge that inflation may rise if interest rates are kept low, but they do not view low-interest rates as a reason for fear.
The opposite of a dove is a hawk. Hawks are people who hold the view that lower inflation results from higher interest rates. Hawks support tight monetary policies, whereas doves favor expansionary ones. They are often opposed to quantitative easing, in contrast to doves who support it. They believe it to be a method of manipulating the asset market. Additionally, they anticipate rising inflation in the future.
Hawks believe that the likelihood of inflation will increase risks throughout the economy. Thus they think that tighter monetary measures are necessary for this reason. Be aware that depending on the circumstances, some people will naturally flip between the dove and hawk attitudes. For instance, when serving as the chairman of the Federal Reserve from 1987 until 2006, Alan Greenspan was seen as being “hawkish.” But in the 1990s, his perspective on the Fed’s policies caused him to turn “dovish.”
In actuality, investors and the American public favor a chair of the Federal Reserve who is able to balance the two roles. In other words, a person has the flexibility to change between the two roles as needed.
Takeaways
- The decisions made by central bankers are referred to as hawks and doves.
- Hawks are thought to be willing to allow interest rates to increase in order to control inflation.
- Dovish central bankers are those who advocate for lowering interest rates in order to boost the economy.
- The doves acknowledge that inflation may rise if interest rates are kept low, but they do not view low-interest rates as a reason for fear.
- Hawks are people who hold the view that lower inflation results from higher interest rates.
