What is a Hawk
A hawk, also known as an inflation hawk, is a policymaker or advisor who is predominantly concerned with interest rates as they relate to fiscal policy. A hawk generally favors relatively high interest rates in order to keep inflation in check. In other words, hawks are less concerned with economic growth than they are with recessionary pressure brought to bear by high inflation rates.
BREAKING DOWN 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 intently focused on a particular aspect of a larger pursuit or endeavor. A budget hawk, for example, is one that believes the federal budget is of the utmost importance — just like a generic hawk (or inflation hawk) is focused 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 typically believe that lower rates will lead to a hike in employment.
This isn't the only instance in economics where animals are used as descriptors. Bull and bear are also used, where the former refers to a market affected by rising prices, while the latter is typically one when prices are falling.
Who Is Considered a Hawk?
As of 2018, Esther George, the Kansas City Fed president, is considered a hawk. George favors raising interest rates and fears the potential price-bubbles that accompany inflation. Loretta Mester, the Cleveland Fed president currently in 2018, studied under Charles Plosser, former president of the Federal Reserve Bank of Philadelphia and a committed hawk. Mester worries about inflation caused by the low interest rates championed by doves.
Can Hawks Be Doves? Can Doves Become Hawks?
Yes. Alan Greenspan, who served as chairman of the Federal Reserve between 1987 and 2006, was said to be fairly hawkish in 1987. But that stance changed, as he started to become dovish in his outlook of the Fed's policies. That lasted well into the 1990s. Ben Bernanke, who succeeded Greenspan as chairman, has also had hawkish and dovish tendencies.
How Are Interest Rates Determined?
At eight annual meetings, a group from the Federal Reserve examines economic indicators such as the consumer price index (CPI) and the producer price index (PPI), and it determines if rates should go up or down. 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 favor these over lower interest rates) make borrowing less attractive. As a result, consumers become less likely to make large purchases or take out credit. The lack of spending equates with lowered 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. 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 this by playing with interest rates.
What Are the Benefits of High Interest Rates?
Although the word hawk is often levied as an insult, high interest rates carry a great deal of economic advantages. While they make it less likely for people to borrow funds, they make it more likely for them to save money. Surprisingly, in some cases, banks also end up lending money more freely when interest rates as high. High rates dissipate risk, making banks potentially more likely to approve borrowers with less than perfect credit histories. Similarly, if a country increases interest rates but its trading partners do not, that can result in a fall in the prices of imported goods.