Updated: Nov 1, 2022
What is Hawkish?
Hawkish is a term used to describe a policymaker’s stance on future interest rates or fiscal policy. Hawks prefer to increase interest rates to maintain sustainable levels of inflation. Higher interest rates restrict money supply which causes people to spend less and inflation to fall.
Definition and Examples of Hawkish
Hawkish individuals prefer higher interest rates in order to keep inflation levels within sustainable areas. Hawks are less concerned with stimulating the economy as they believe the high inflation rates can cause recessionary pressures. It’s a constant tug of war to increase or decrease interest rates based on the economic environment.
Hawkish policymakers are mainly concerned about the risks that come with high inflation. For example, during the recovery from the financial crisis in 2015 U.S. policymakers were Hawkish on interest rates. This allowed interest rates to increase and then as the economy took a hit during the COVID-19 pandemic policymakers became dovish to recover the economy.
Alternate names: Hawk, Bull, Bullish, Militant, Warlike
Policymakers are at a constant tug of war of easing or tightening interest rates so that prices remain stable and maximum employment is achieved. For example, the Federal Open Market Committee (FOMC) of the Federal Reserve is responsible for setting the United States monetary policy.
The FOMC will have a mixture of Hawkish and Dovish policymakers with some taking on a more neutral stance known as centralists. The FOMC will then make a vote on if interest rates should increase or decrease, if the majority is in favour of increasing the interest rates then you can assume that the FOMC is Hawkish and vice versa for Dovish.
How Hawkish Works
Policymakers tend to be Hawkish when there’s a concern about inflation. The Hawkish policies will try to keep prices and wages from rising too quickly by increasing interest rates, this reduces the supply of money in the economy. Essentially, this limits the growth of the economy momentarily.
When policymakers are Hawkish on interest rates they want the interest rates to rise.  This rise in interest rates makes borrowing money expensive. Businesses and consumers are less willing to take on loans as it’s expensive to pay back. Hawkish policy therefore helps keep prices from rising too quickly by both limiting wage growth and prices of goods and services.
Hawks can be seen as the bad guy for those that are:
Looking for work.
Looking to take on loans.
However, hawkish policies are actually beneficial when inflation looks like it will get out of hand. For example, if the country’s prices are rising too quickly and consumers' currencies are starting to devalue then increasing interest rates will actually help the economy. This is because higher interest rates will cause consumers to save money as there’s higher interest rates and borrow less because it’s more expensive. The economy therefore will slow down and inflation comes back down.
Hawkish vs Dovish
The hawks and the doves are like the bulls against the bears but a fight in the direction of interest rates and monetary policy. Hawkish and Dovish are both beneficial for the economy depending on what is happening. If the economy is growing too quickly having a hawkish approach is great, if the economy has slowed down and needs to pick up being Dovish will help do so. When trading using currency correlations, understanding the hawkish and dovish policies will help gauge when policymakers are likely going to switch from one to the other.
What does It Mean for Retail Traders
Retail traders need to keep an eye on the monetary policy, if policymakers are bullish on interest rates then this is a hawkish monetary policy to tighten the economy. If the policymakers are bearish then this is to create economic growth and expansion.
Traders who incorporate news and fundamental analysis will need to monitor interest rate decisions. Most robust trading strategies will include interest rate consensus such as the global macro approach to trading which you can learn in the beginners forex course.
Yahoo Finance. “Dovish vs Hawkish: Key Monetary Policy Differences”. Accessed July 14, 2021.
Sylvester Eijffinger and Donato Masciandaro. “Hawks and Doves: Deeds and Words”. Accessed July 14, 2021.