“Dovish” and “hawkish” are terms commonly used in the field of economics and finance to describe the stances of central banks or policymakers on monetary policy, particularly in relation to interest rates and inflation. These terms indicate the degree of aggressiveness or caution in addressing economic issues.
The terms “dovish” and “hawkish” have their origins in the world of military and warfare, and they were adopted in economics and finance to describe the aggressive or cautious nature of policymakers’ approaches to monetary policy. Here’s why they are called dovish and hawkish:
The term “dovish” is derived from the bird “dove,” which is traditionally associated with peace and tranquility. In the context of monetary policy, a “dovish” stance suggests a preference for peace and stability in the economy, with a focus on promoting economic growth and reducing unemployment. Doves are often seen as gentle and less aggressive birds, so a dovish policymaker is inclined to take a more passive and accommodating approach to stimulate economic activity.
In the aftermath of the 2008 financial crisis, the U.S. Federal Reserve, under the leadership of Chair Janet Yellen, adopted a dovish stance. The Fed implemented various rounds of quantitative easing (buying bonds to inject money into the economy) and kept interest rates at historically low levels to support the economic recovery. Yellen’s policies were seen as dovish because they prioritized job creation and economic growth over inflation concerns.
The term “hawkish” is derived from the bird “hawk,” which is known for its aggressive and predatory nature. In the context of monetary policy, a “hawkish” stance implies a more aggressive and vigilant approach, with a strong focus on controlling inflation and maintaining price stability. Hawks are associated with assertiveness and a willingness to take action, so a hawkish policymaker is more likely to raise interest rates and tighten monetary policy to curb inflation, even if it means sacrificing some economic growth.
During the 1980s, the U.S. Federal Reserve, under the leadership of Chair Paul Volcker, pursued a hawkish monetary policy to combat high inflation. Volcker raised interest rates to exceptionally high levels, which led to a recession but successfully brought down inflation. This approach was considered hawkish because it prioritized inflation control over economic growth.
In summary, “dovish” and “hawkish” are terms used to describe the stance of central banks or policymakers in response to economic conditions. Dovish policies prioritize economic growth and employment and may involve lowering interest rates, while hawkish policies prioritize inflation control and price stability and may involve raising interest rates. The choice between these stances depends on the economic context and the goals of the central bank or policymakers.