Hawk

What is a Hawk?

A hawk, also known as an inflation hawk, is a decision maker or advisor primarily concerned with interest rates linked to fiscal policy. A hawk usually favors relatively high interest rates in order to control inflation. In other words, hawks are less concerned with economic growth than with recessionary pressures from high inflation rates.

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falcon

Understanding Hawk

Although the most common use of the term “hawk” is described above, it can be used in a variety of contexts. In each case, it refers to someone who is intensely focused on a particular aspect of a larger pursuit or effort. A budget hawk, for example, is one who believes that the federal budget is of the utmost importance – just like a generic hawk (or inflation hawk) focuses on interest rates.

The opposite of a hawk is a dove, or an economic policy advisor who prefers monetary policies that involve low interest rates. Doves generally believe that a drop in rates will lead to an increase in employment.

This is not the only example in economics where animals are used as descriptors. The bull and the bear are also used, where the former refers to a market affected by rising prices, while the latter is generally a market where prices fall.

Key points to remember

  • Hawks are policy makers and advisers who prefer higher interest rates to control inflation.
  • The opposite of a hawk is the dove, the policy makers who prefer a more accommodating interest rate policy, which means it is lower and stimulates spending in an economy.
  • Depending on the state of the US economy, policy makers vary between being hawks or doves.

Who is considered a hawk?

Since 2020, Esther George, the president of the Kansas City Fed, has been considered a hawk. George is in favor of a rise in interest rates and fears the possible price bubbles that accompany inflation. Loretta Mester, the president of the Cleveland Fed currently in 2020, studied with Charles Plosser, former president of the Federal Reserve Bank of Philadelphia and engaged falcon. Mester is worried about the inflation caused by the low interest rates defended by the doves.

Can hawks be doves? Can doves become hawks?

Yes. Alan Greenspan, who was chairman of the Federal Reserve between 1987 and 2006, would have been rather hawkish in 1987. But that position changed, as he began to become accommodative in his view of Fed policies. It lasted a long time in the 90s. Ben Bernanke, who succeeded Greenspan as president, also had warmongering and Dovish tendencies.

How are interest rates determined?

At eight annual meetings, a Federal Reserve group examines economic indicators such as the Consumer Price Index (CPI) and the Producer Price Index (PPI), and determines whether rates should go up or decrease. Those who support high rates are hawks, while those who favor low interest rates are labeled doves.

How do high interest rates affect inflation?

High interest rates (remember, hawks tend to prefer them to lower interest rates) make borrowing less attractive. As a result, consumers become less likely to make large purchases or take out credit. Lack of spending equals lower demand, which helps keep prices stable and prevents inflation.

On the other hand, low interest rates encourage consumers to take out loans for cars, houses and other goods. As a result, consumers spend more and ultimately inflation occurs. It is the Fed’s responsibility to balance economic growth and inflation, and it does so by playing with interest rates.

What are the advantages of high interest rates?

Although the word hawk is often seen as an insult, high interest rates have many economic benefits. Although they reduce the likelihood of borrowing funds for people, they reduce the likelihood of saving. Surprisingly, in some cases, banks also end up lending money more freely when interest rates are so high. High rates dissipate risk, making banks potentially more likely to approve borrowers with less than perfect credit histories. Likewise, if a country increases interest rates but not its trading partners, this can lead to lower prices for imported goods.

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