Hawks and doves definition

What are hawks and doves in monetary policy?

Hawks and doves are the terms used to categorise policy makers and advisors within a central bank’s committee by their probable voting decision. They are commonly used by analysts and traders ahead of monetary policy meetings to help anticipate the outcome of a vote.

What does it mean to be hawkish?

Hawks vote for tighter monetary policy – meaning higher interest rates – with the aim of keeping inflation in check. This often comes at the expense of economic growth, as higher interest rates discourage borrowing and encourage saving.

Higher interest rates tend to have a negative impact on stocks and indices within the affected economy, as investors sell assets in favour of lower-risk investments that still offer strong returns. This can in turn cause the economy’s currency to rise.

Notable hawks

As an example, doves tend to be in favour of quantitative easing, seeing it as a way to stimulate the economy. In contrast, hawks usually oppose quantitative easing, viewing it as a distortion of asset markets.

It’s important to note that a person’s hawkish or dovish learnings are not set in stone. For instance, Alan Greenspan, who was chairman of the US Federal Reserve between 1987 and 2006, was said to be a hawk when he first entered the position. However, throughout the 1990s, Greenspan’s views changed to more closely reflect the ideology of doves.

Policy makers and advisors who sit on the fence, shift their stance or do not take an outright hawkish or dovish position, are referred to as pigeons.

What does it mean to be dovish?

Doves vote for looser monetary policy, keeping interest rates low with the aim of boosting economic growth. This should increase spending, benefitting the economy and increasing employment, but it could come with the risk of rising inflation.

Lower interest rates tend to encourage investors to move their capital into higher-risk assets and discourage saving. This can have a positive effect on the stocks and indices within an economy, but a negative effect on its currency.