Hawkish and dovish are two opposing attitudes that were raised by two camps of monetary officials during a meeting of central bank officials. The two attitudes have different views in formulating monetary policy regarding future economic growth and inflation.
The main thing is. those who adopt a hawkish attitude consider that monetary policy tightening is necessary in determining the fate of a country’s economy. Meanwhile, the dovish attitude is shown by those who think otherwise.
These two attitudes always arise when monetary policymakers are consulted in every decision-making. Therefore, it is not surprising that these two terms also appear, and are now common terms among investors and economic analysts in viewing the attitude of the central bank.
So, what exactly do hawkish and dovish look like?
Dovish vs Hawkish
The hawkish monetary officials argue that a high-interest rate regime should be in place. Moreover, when the economic growth of a country is rapidly accelerating.
So, why do they want this policy?
According to economic theory, the impact of massive economic growth is high inflation. If not controlled, inflation will make the economic growth that is sought to feel in vain, because the value of property owned by the community is increasingly meaningless.
From the monetary side, inflation itself arises due to a large amount of money in circulation. This will cause an increase in the price of goods and services that can hurt people’s purchasing power. Thus, this condition must be controlled by raising the benchmark interest rate.
When the benchmark interest rate increases, people will put the brakes on their spending and prefer to save or invest. As a result, inflation can be controlled properly.
This attitude always appears at every monetary policy meeting. This is understandable because hawkish monetary officials always make decisions based on inflation control.
They believe that high interest rates are a reflection of inflation control from a monetary perspective. No wonder the hawkish often want it to stay high so that inflation is maintained.
Dovish, Stimulus for Economic Growth
The opposite condition is shown by monetary officials with a dovish view. They argue that the benchmark interest rate should be set low on the basis of strengthening economic growth.
The dovish believe that a country’s economy should be healthy and widely enjoyed by all levels of society. No wonder their opinion is based on the number of new jobs that are formed, ease of doing business, equality, and equal opportunities for everyone.
Well, in monetary terms, this can only be done by installing a low benchmark interest rate. This is because low interest rates can stimulate investment and consumption, two of the four main components of economic growth.
If bank interest is too high, then people will enjoy high-cost credit. Thus, community association funds in the form of savings will not have a multiplier effect on the economy at large.
The dovish understand that low interest rates can trigger inflation. However, they believe that inflation is no more important than economic growth.
Moreover, dovish decisions are generally populist decisions that win the elections.
Therefore, many policymakers are dovish or neutral as Jerome Powell is currently sitting as Chairman of the Federal Reserve.
Hawkish and Dovish Are Exciting Ideological Feuds
No feud is more fruitful to listen to than ideological warfare. This is what makes every FOMC meeting highly awaited, even the minutes of the meeting. Both hawkish and dovish are two valid views on his view in taking a monetary policy.
Actually, the terms hawkish and dovish are not limited to FOMC members or monetary policymakers. Anyone who believes that high interest rates, monetary tightening, and reducing monetary stimulus is the best way to cut inflation can be classified as hawkish.
Likewise with dovish. Journalists and politicians who sometimes participate in lobbying for interest to be kept low and stimulus launched are dovish.
The two, both hawkish and dovish, are equalizers who both want the common good. When the dovish policies that are launched begin to form aggregate demand that raises inflation unhealthy, the hawkish will take decisive steps.
History also records that sometimes someone who is known as a dovish can turn hawkish in different contexts, or when it is necessary. A concrete example is found in former Fed chair Janet Yellen.
Although known as dovish, Yellen once initiated a change in the direction of the Fed’s policy which has long held interest rates at almost 0%. Yellen said it was time for the Fed to raise its benchmark interest rate in response to high inflation in the US.
Yellen isn’t the only defector. The same thing was done by Alan Greenspan, who served as chairman of the Fed from 1987 to 2006.
During that time, he was known as a seasoned hawkish. However, Greenspan began to change course since the September 11, 2001 attacks and various events that occurred during his reign. Slowly he began to adopt dovish values and implement them to leverage Uncle Sam’s economy.
Since then, monetary figures who lead the Fed began to take a neutral course. He can be hawkish and dovish according to the context and conditions that took place at that time.