Hawkish or Dovish
Hawkish or dovish: the meaning in monetary policy
For finance experts to have hawkish or dovish has a very precise meaning: these are two behavioral and counter-approaches adopted by a policymaker or any institution (central bank) within the monetary policy of an economic system.
Being related to pipelines implemented by central banks within decisions taken in a macroeconomic context, it is necessary to clarify the meaning and importance of hawkish (hawk) and dovish (dove) terms.
Even in financial language, often and willingly, we adopt terms borrowed from the zoological world which allude to a deeper meaning and are related to economic-political discipline.
In the macroeconomic context, being hawkish refers to a policy adopted by central banks or a rigid and pessimistic definable policymaker looking at inflation, which is likely to go too far behind strong economic growth.
As the behavioral feature of the hawk, hawkish monetary advocates advocate measures to keep under control the over-rising inflation.
How? With restrictions on monetary expansion, the application of higher interest rates and a restrictive fiscal policy.
In other words, hawks are less interested in economic growth as inflationary pressures can erode consumer purchasing power and cast uncertainty about price stability.
Hawkish is a pessimist to the evolution of inflation, its behavior is very similar to that of the bullish but with the clear difference that the latter is optimistic about the macroeconomic context.
For example, think of a Governor of a Central Bank who expresses all its concern over the effects that rising industrial property prices may have on the inflation level of a given economic system.
From 2016, Esther George, governor of Fed Kansas City, is considered one of the exponents of the “hawk” conduct. George favors rising interest rates and fears potential price bubbles that may have an impact on inflation. This is a clear example of conduct described as hawkish.
The exact opposite of Hawkish is the term Dovish, which has a very different meaning from the rigid attitude of the “hawk”.
It is no coincidence that the term Dovish comes from the term “Where” which means “Dove”, docile animal and emblem of peace, tranquility, and positivity.
A Dovish policy maker promotes monetary policies involving low-interest rates, which support employment in an economic system and needed to fuel economic growth.
An example is a Governor of a Central Bank who wants to stimulate an increase in the inflation of a given economic system.
In addition, consumers in a system with low-interest rates are more likely to contract mortgages, car loans, and credit cards. This pushes the recovery in consumption and economic growth in the country.