# Inflation Hawks Explained: Hawkish vs. Dovish Monetary Policies

## What Is an Inflation Hawk?

In economic discussions, "hawks" are policymakers focused on controlling inflation by raising interest rates, even if it affects growth and employment. This hawkish stance emphasizes inflation stability over short-term economic gains, contrasting with "doves," who favor low rates to boost activity. This exploration compares these monetary philosophies, showing their influence on central banks' efforts to balance economic growth and inflation.  

### Key Takeaways

*   Inflation hawks focus on curbing inflation through higher interest rates, often prioritizing it above economic growth.  
    
*   Hawkish monetary policies can stabilize prices by reducing borrowing and spending but may also risk deflation and economic contraction.  
    
*   The Federal Reserve adjusts interest rates based on economic indicators, with hawks advocating for higher rates to control inflation.  
    
*   High interest rates can benefit savers and make imports cheaper but can disadvantage domestic producers and borrowers.  
    
*   Policymakers may shift between hawkish and dovish stances over time, as seen in the leadership transitions at the U.S. Federal Reserve.

![Inflation Hawk](https://www.investopedia.com/thmb/rpcJM_SyESe1yzkNl8kPcEyQ-V8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/hawk.aspfinal-143459ae7db043f78356f272f72cf656.jpg)

*— Investopedia / Candra Huff*

## How Inflation Hawks Shape Economic Policy and Impact Markets

A hawk generally favors relatively higher interest rates if they are needed to keep inflation in check. In other words, hawks are less concerned with [economic growth](https://www.investopedia.com/terms/e/economicgrowth.asp) and more focused on the potential of [recessionary](https://www.investopedia.com/terms/r/recession.asp) pressure brought to bear by high inflation rates.

The benefits of a hawkish stance depend on the economy's health and other factors. While these policies can reduce inflation, they might also slow the economy and raise unemployment, sometimes even causing [deflation](https://www.investopedia.com/terms/d/deflation.asp).

Although it is common to use the term “hawk” as described here in terms of monetary policy, it is also used in a variety of contexts. It refers to someone intensely focused on a specific aspect of a broader pursuit. A budget hawk, for example, believes the federal budget is of the utmost importance. A war hawk, similarly, pushes for armed conflict to resolve disputes as opposed to diplomacy or restraint.

> **Fast Fact**
>
> The opposite of a hawk is known as a dove, or an economic policy advisor who prefers monetary policies that involve low interest rates. Doves typically believe that lower rates will stimulate the economy, leading to an increase in employment.

## Pros and Cons of Hawkish Policies: A Comprehensive Evaluation

### Advantages

Although the term “hawk” is often levied as an insult, high interest rates can carry economic advantages. While they make it less likely for people to borrow funds, they make it more likely that they will save money.

In some cases, banks end up lending money more freely when interest rates are higher. High rates can reduce perceived risk, possibly encouraging banks to lend to those with lower credit scores. Moreover, if a country increases interest rates but its trading partners do not, that can result in a fall in the prices of [imported](https://www.investopedia.com/terms/i/import.asp) goods.

### Disadvantages

Higher interest rates can cause deflation, leading to lower prices. While this can be a short-term positive, [deflation can often be worse](https://www.investopedia.com/terms/d/deflationary-spiral.asp) than moderate inflation in the long run. Persistent deflation means that a dollar tomorrow will be worth more than one today, and worth even more in a week or a month. This encourages people to save money and delay big purchases, expecting prices to drop as the dollar's value increases.

Higher interest rates cause consumers to borrow and spend less on credit. Higher mortgage rates also slow the housing market and can lead to lower housing prices. Higher rates on car loans can have a similar effect on the automobile market.

Hawkish policies will likewise tend to reduce a company’s desire to borrow and invest, as the cost of [loans](https://www.investopedia.com/terms/l/loan.asp) and interest rates on [bonds](https://www.investopedia.com/terms/b/bond.asp) rise. Companies may become less willing to hire and train workers in this setting.

Hawkish policies can also impact domestic manufacturers and trade. If the relative inflation rate in the home country is falling relative to the inflation rate in a trading partner, the [exchange rate](https://www.investopedia.com/terms/e/exchangerate.asp) should adjust to keep prices in line with the dollar [appreciating](https://www.investopedia.com/terms/a/appreciation.asp) relative to the trading partners. As the home currency strengthens, imported goods become cheaper, which can negatively affect local manufacturers. Simultaneously, domestic exports become pricier for foreign consumers, harming local manufacturing.

> **Important**
>
> Hawkish policies benefit savers and lenders, who enjoy higher interest rates. They also make imports and traveling abroad cheaper. Hawkish policies tend to negatively impact borrowers and domestic manufacturers. They also make exports and domestic tourism more expensive.

### Pros and Cons of Hawkish Policy

Pros

*   Can stem runaway inflation
    
*   Increases the savings rate
    
*   Cheaper imports
    
*   Tourists to foreign destinations have greater purchasing power
    

Cons

*   Can hurt domestic producers
    
*   Makes borrowing more expensive for consumers and firms
    
*   Can lead to deflation
    

> **Fast Fact**
>
> These aren’t the only instances in economics in which animals are used as descriptors. Bulls and bears are also used—the former refers to a market affected by rising prices, while the latter is typically one where prices are falling.

## Why Is It Called "Hawkish"?

Hawks and hawkish policy are more aggressive in nature, whether in terms of monetary policy or military stance during a potential conflict. It is named after hawks, the aggressive birds of prey.

Doves and dovish policies are considered more cautious or conservative.

## Can Hawks Become Doves and Vice Versa?

Yes, as the recent history of U.S. Fed leadership shows.

[Alan Greenspan](https://www.investopedia.com/terms/a/alangreenspan.asp), who served as chair of the Fed from 1987 to 2006, was considered to be fairly hawkish in 1987, but he changed over time to a relatively dovish stance. [Ben Bernanke](https://www.investopedia.com/terms/b/benbernanke.asp), who served in the post from 2006 to 2014, also alternated between hawkish and dovish tendencies. 

[Janet Yellen](https://www.investopedia.com/articles/investing/101613/janet-yellen-background-and-philosophy.asp), Fed chief from 2014 to 2018, was generally seen as a dove who was committed to maintaining low lending rates. [Jerome Powell](https://www.investopedia.com/jerome-powell-5210572), named to the post in 2018, was rated as neutral (neither hawkish nor dovish) by the Bloomberg Intelligence Fed Spectrometer.

## How Are Interest Rates Determined?

At eight annual meetings, a group from the Fed examines economic indicators such as the [Consumer Price Index (CPI)](https://www.investopedia.com/terms/c/consumerpriceindex.asp) and the [Producer Price Index (PPI)](https://www.investopedia.com/terms/p/ppi.asp) and determines if interest rates should go up or down, or stay the same. Those who support high rates are hawks, while those who favor low rates are labeled doves.

High interest rates make [borrowing](https://www.investopedia.com/articles/basics/07/financing-options.asp) less attractive. As a result, consumers become less likely to make large purchases or take out credit. The lack of spending equates to lower demand, which helps to keep prices stable and prevent inflation.

In contrast, low interest rates entice consumers into taking out loans for cars, houses, and other goods. Consumers spend more, and, ultimately, inflation occurs.

It is the Fed’s responsibility to balance economic growth and inflation, and it does this by manipulating interest rates.

## The Bottom Line

Inflation hawks focus on controlling inflation through higher interest rates, prioritizing price stability over short-term economic growth and employment. This strategy may deter borrowing and spending, potentially leading to deflation and higher unemployment. Policymakers must weigh these trade-offs, as hawkish policies can benefit savers and reduce import prices but also make borrowing more costly and hurt domestic producers and exporters. Central banks like the U.S. Federal Reserve adjust interest rates based on economic indicators, switching between hawkish and dovish stances as necessary to balance economic growth and inflation.