Hawkish vs. dovish: reading the language of a hawkish Fed

In discussions of central banking, hawkish and dovish are shorthand for two leanings. A hawkish official gives more weight to keeping inflation low and is more willing to raise interest rates or hold them high to achieve that. A dovish official gives more weight to supporting employment and growth and is more willing to cut rates or keep them low. A hawkish Fed, in the media’s usage, is a central bank whose communications or decisions suggest tighter policy than markets expected.

The terms are informal. The Federal Reserve does not use them in its official documents, and officials sometimes reject the labels. This guide explains where the vocabulary comes from, how analysts apply it to FOMC statements, testimony and the dot plot, and why it can mislead.

In brief

• Hawkish means leaning toward tighter policy to restrain inflation. Dovish means leaning toward easier policy to support jobs and growth.
• The labels are relative. A statement is hawkish or dovish compared with expectations or with the previous statement.
• They describe leanings, not fixed camps. The same official can be called hawkish in one period and dovish in another.
• The Fed’s mandate gives it two goals, so the labels are about weighting and timing, not about ignoring either goal.

Where the language comes from

The terms borrow the image of a hawk, aggressive and watchful, and a dove, gentle. They entered economic commentary long before the current era and apply to central banks around the world. Their usefulness is that they compress a complicated judgment into a single word: how much inflation risk a policymaker will accept in order to support jobs, and how much job loss they will accept in order to control inflation.

For the Federal Reserve, the underlying trade-off is built into law. Section 2A of the Federal Reserve Act directs the Board and the FOMC to promote the goals of maximum employment, stable prices and moderate long-term interest rates. The committee’s longer-run statement defines stable prices as inflation of 2 percent over the longer run, measured by the PCE price index, and says that maximum employment is not directly measurable, so the committee uses a wide range of indicators. When the two goals pull in different directions, the same statement says the committee weighs how far each is from its goal and the different time horizons over which each is expected to return to a level consistent with it.

That sentence describes the spectrum. A hawk would put more weight on the inflation gap or on the risk that inflation expectations drift. A dove would put more weight on the employment shortfall or on the risk of tightening too much.

What each leaning looks like in practice

Hawkish signals

• A rate increase, or a decision to hold when markets expected a cut.
• Language that describes inflation as elevated, persistent or broad-based.
• Statements that further increases may be appropriate, or that policy will stay restrictive for some time.
• Concern that inflation expectations could become unanchored.
• A dot plot with participants projecting higher rates than previously.
• Dissents in favor of a larger increase or against a cut.

Dovish signals

• A rate cut, or a decision to hold when markets expected an increase.
• Language that stresses labor market softening, slowing growth or progress on inflation.
• Statements that the committee can be patient or that risks to employment have increased.
• Emphasis that policy is already restrictive enough.
• A dot plot with participants projecting lower rates than before.
• Dissents in favor of a cut or against an increase.

Mixed signals

Many communications combine both. A committee might raise rates and also say it is attentive to labor market risks. The result is described as hawkish or dovish according to which elements surprised the market.

Relative to what?

The key idea is that hawkish and dovish are measured against a benchmark. There are three common ones.

1. Market expectations. A decision to raise rates by a quarter point is not hawkish if the market fully expected it. It is hawkish if the market expected no change. This is why analysts speak of a hawkish hold or a dovish hike. A hold that is accompanied by tougher language than expected can be called a hawkish hold, and an increase accompanied by language suggesting it may be the last can be called a dovish hike.
2. The previous communication. If this statement describes inflation more severely than the last one, it has moved in a hawkish direction.
3. The committee’s center. When describing an individual official, analysts compare that person with the median of the committee or with the official’s own earlier remarks.

Where to look for signals

The statement

The statement’s decision, assessment of the economy, risk language, forward guidance and vote line all feed the judgment. A companion guide explains how to read an FOMC statement paragraph by paragraph.

The dot plot

The Summary of Economic Projections is released four times a year, in March, June, September and December. The Fed’s guide explains that each participant submits a projection for the appropriate federal funds rate, shown as a dot rounded to the nearest one-eighth of a percentage point, along with projections for growth, unemployment and inflation. Analysts compare the median dot with the previous quarter’s median, and examine how the dots are spread. A rightward or upward shift in the dots is read as hawkish.

The Fed offers explicit cautions. Each projection reflects the participant’s own view of appropriate policy and is not a single committee forecast, and the path of the federal funds rate is uncertain because the committee adjusts policy as conditions change. A dot plot is a snapshot of individual opinions, not a plan.

Testimony and speeches

Fed officials testify before Congress and give speeches that the Federal Reserve Board publishes on its website. These are the main source of individual views. The chair’s testimony reflects the committee’s stance, while speeches by governors and Reserve Bank presidents express their own views. An official who emphasizes inflation risks and states a willingness to raise rates further is usually described as hawkish, while one who emphasizes labor market risks and points to room for easing is described as dovish.

Fed testimony also tends to be longer and more detailed than the statement, which means it can include nuance that a single word label hides.

The press conference

After each regular meeting the chair holds a press conference. Answers to questions about future moves often carry the strongest hawkish or dovish message of the week, since they are less scripted than the statement.

The minutes

The minutes, published three weeks after each meeting, show the balance of participants’ views using terms such as many and several. They help answer whether the hawkish or the dovish view held the majority.

A worked example, with invented numbers

The following example is hypothetical.

Suppose markets expect the FOMC to hold its target range steady. The committee holds as expected, but its statement says that inflation remains elevated and that additional policy firming may be appropriate. At the same meeting the median projection for the federal funds rate at year-end rises by a quarter point compared with the previous projections, and two participants dissent in favor of an increase.

Analysts would call this a hawkish hold. The decision matched expectations, but the language, the projections and the dissents all pointed toward tighter policy. A few weeks later, the minutes record that many participants saw further increases as likely to be appropriate, which reinforces the reading.

Now reverse the elements. The committee raises rates as expected, but the statement drops the sentence about additional firming, the projections show fewer increases ahead, and a participant dissents in favor of holding. That is a dovish hike. The action was tightening, and the message was that tightening may be nearing an end.

Why the labels can mislead

They flatten the dual mandate

Both hawks and doves pursue the same two goals. The difference lies in weighting, timing and risk assessment. A so-called hawk may be motivated by concern that high inflation hurts workers, and a so-called dove may worry that unnecessary tightening would cost jobs. Neither is indifferent to the other goal.

They change with conditions

An official who argues for tighter policy when inflation is high may argue for easing when inflation falls and the labor market weakens. Treating the label as a permanent trait misses that the position follows the data.

They depend on the benchmark

Because the labels are relative, the same words can be hawkish in one setting and neutral in another. A statement that sounded firm during a period of low inflation may sound routine when inflation is high.

They simplify the policy toolkit

Policy includes the balance sheet, the forward guidance and the framework as well as the rate. A committee can tighten through its balance sheet while holding rates, and a label based only on the rate misses this.

They are informal

The Fed’s documents describe objectives, risks and conditions, not hawks and doves. Treat the labels as a reader’s shorthand and go back to the primary text for the exact wording.

Common misconceptions

A hawk is not someone who always wants higher rates. A hawk wants whatever policy keeps inflation in check, which can include cutting when inflation has fallen.

A dove is not indifferent to inflation. The label describes a greater tolerance for risk on the inflation side in exchange for support to employment.

A hawkish Fed does not mean rates will rise at the next meeting. It means communications or decisions leaned tighter than expected, and the next decision still depends on data and a vote.

The dot plot does not decide policy. It is a set of individual projections, as the Fed’s own guide stresses.

FAQ

Is hawkish good or bad?

Neither. It is a description of a policy leaning. Whether a hawkish stance is appropriate depends on the economic conditions at the time, and people differ in their views.

Does the Fed call itself hawkish or dovish?

Official Fed documents describe goals, risks and the committee’s assessment and do not use the labels. Commentators apply them.

What is a hawkish hold?

A decision to leave rates unchanged that is accompanied by language, projections or dissents suggesting tighter policy than expected.

How can I tell if an official is hawkish?

Read their speeches and testimony on the Federal Reserve Board’s website. Look at how they describe inflation risks, employment risks and the appropriate path of the federal funds rate, and compare them with the committee’s median view.

How often does the dot plot change?

The Fed publishes new projections four times a year, after the March, June, September and December meetings, so the dots update on that schedule.