[Beginner's Guide to Stock Market] Eyes on Powell's Words... What Are 'Dovish' and 'Hawkish'?

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jaehee] Last week, the biggest issue in our stock market was undoubtedly the result of the U.S. Federal Open Market Committee (FOMC) meeting in June. Amid uncertainty over whether it would be a big step (raising the benchmark interest rate by 0.5%) or a giant step (raising it by 0.75%), our stock market fluctuated significantly. You may have also seen terms like 'hawkish nuance' and 'dovish.' It might have seemed strange to associate hawks and doves with interest rate hikes. So, what exactly do doves and hawks have to do with interest rate hikes? Let's find out.

What are hawks and doves?

Imagine the images of hawks and doves. Doves are commonly known as 'symbols of peace,' giving a soft impression. On the other hand, hawks have a fierce image. The same applies to interest rate hikes. Among the various Federal Reserve members who make up the FOMC, those who advocate raising interest rates to tighten monetary policy are called 'hawks,' while those who argue for lowering interest rates to stimulate the economy are called 'doves.' In other words, hawks represent the hardliners in monetary policy, arguing that since the economy is overheating, it is necessary to curb inflation, whereas doves are the moderates in monetary policy who advocate lowering the benchmark interest rate.

[Image source=Yonhap News]

Have you heard of the owls?

It's not just hawks and doves. Not all members strictly argue from one side or the other. There are also owls. Owls represent the centrists in monetary policy, who flexibly consider raising or lowering interest rates depending on the economic situation.

Are hawks right and doves wrong?

[Image source=Reuters Yonhap News]

Then you might also think this way: that hawks are right or doves are right. However, economic conditions are always changing and variables exist, so neither side is always correct. For example, during the COVID-19 pandemic when the global economy was severely impacted, hawkish Federal Reserve members in the U.S. became dovish and actively supported lowering interest rates to 0%. Hawks became doves. Conversely, in 2007, when the global economy was booming and inflation surged, even dovish Federal Reserve members actively supported raising interest rates.

Whether hawks or doves, there is no absolute right answer, but they all share a common understanding of price stability.

As investors, what we should focus on is not the terms hawk or dove themselves, but the reasons why interest rates are being raised or lowered. By making an effort to understand these reasons, you will also develop a better perspective on the stock market.