Inflation Hawk - Definition
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Inflation Hawk Definition
A Hawk or an inflation Hawk is a financial advisor or policymaker who believes that monetary policies should maintain high-interest rates to curb inflation. They are primarily interested in high-interest rates as they relate to Fiscal policy. Hawks are generally not concerned with economic growth but, support an economy operating at a level below its full-employment equilibrium. In other words, Hawks view inflation as a top priority and high-interest rates as a check for inflation.
A Little More on What is an Inflation Hawk
The term 'hawk' can be used in varying contexts. We have been able to give definition to the common context but it could also refer to someone who is predominantly focussed on a specific aspect of an endeavor or a pursuit. Hawks have their specific focus different from others. For example, inflation hawks are focussed on interest rates, budget hawks focus on the federal budget, among others. On the contrary, while a hawk focuses on high-interest rates, a dove prefers monetary policies which basically support low-interest rates. Doves are financial advisors or policymakers who believe that lower interest rates will result in an increase in employment, they value economic indices like low unemployment over keeping inflation low. Animals have been used times without number as a signifier of various economics concepts, Hawks used to represent financial advisors who is concerned with high-interest rates. Also, bull and bear are used. Bull refers to a market affected by inflating or rising prices, while bear refers to a market affected by low or falling prices.
Who Is Considered a Hawk?
Esther George, the Kansas City Fed president, is considered a hawk in 2018 following her specific focus on high-interest rates. George supports raising interest rates and fears the potential price changes or instability that occur as a result of inflation. Also, Loretta Mester, the Cleaveland Fed president in 2018 who studied under Charles Plosser, former president of the Federal Reserve Bank of Philadelphia is a staunch hawk.
Can Hawks Be Doves? Can Doves Become Hawks?
Hawks can be doves. For example, Alan Greenspan, former chairman of the Federal Reserve between 1987 and 2006, was partly hawkish in 1987, supporting high-interest rates policies. But that stance changed, he started to favor low-interest rates (dovish) in his views of the Fed's policies. This stance changes lasted through the 1990s. To mention, Ben Bernanke, Greenspans successor as chairman had also exhibited hawkish and dovish tendencies in his outlook of monetary policies.
How Are Interest Rates Determined?
This is determined by examining the economic indicators or indices such as the consumer price index (CPI) and the producer price index (PPI). These indicators determine if rates should rise or fall. This analysis is done by a group from the Federal Reserve at their eight annual meetings. Those who favor low-interest rates are named doves while the others who support high-interest rates are classified as the hawks.
How Do High Interest Rates Affect Inflation?
Consumers are less likely to be interested in making large purchases or taking out credit as a result of high-interest rates. In other words, high-interest rates make borrowing difficult and less attractive. This will result in lower spending which in turn causes lower demand, this will help to stabilize prices and curb or prevent inflation. On the other hand, consumers are likely to be interested in taking out loans, making large purchases and spending more as a result of low-interest rates. Consumers even take loans to buy cars, build houses, goods, and others. Low-interest rates make consumers spend more, this eventually results in inflation.
What Are the Benefits of High Interest Rates?
High-interest rates are more economically advantageous than disadvantageous. With high-interest rates, people are disinterested in loans and tend to save more. Banks lend more freely because of the high-interest rates of the loans. High rates reducerisk, making banks more likely to approve borrowers with tainted credit histories. Likewise, when a country increases its interest rates but its trading partners fail to do so, this will result in a fall in the prices of imported goods.