Hawkish vs. Dovish

 

Well, let's dive (pun intended) right into it! There are two main definitions for the above word:

(A) having a militant attitude (as in a dispute) and advocating immediate vigorous action

especially: supporting war or warlike policies

(B) Hawkish refers to when a central bank’s policymakers talk about raising interest rates, slowing down economic growth, or even easing up on inflationary pressures. A Hawkish stance in economics and finance is when the central bank wants to tighten its policies in order to keep inflation, and then subsequently interest rates, low.Hawkish is usually recommended when the inflation rate has risen, and there are signs that it will continue to rise if steps aren’t taken now.The Hawkish stance differs from dovish in that Hawkish is concerned with consumer price inflation, while Dovish focuses on economic growth.

The Hawkish stance is typically used to reduce the risk of deflation.

+ It reduces a lot of risks associated with the economy like inflation, high levels of debt, and economic depression.

- It’s also seen as an infringement on autonomy because it conflicts with central bank independence in decision making 

Dovish (or accommodative) policy, is the opposite of hawkish and favors expansionary monetary policy to achieve maximum levels of employment. The Fed does this by lowering the Fed Funds rate. This has a ripple effect on the economy, making it easier for homebuyers to get a mortgage, consumers to purchase things on credit, and businesses to obtain loans to hire more workers or increase production, etc.