In finance and monetary policy, the term hawkish refers to a strict, conservative approach adopted by central banks to combat inflation. Policymakers described as hawkish prioritize price stability over short-term economic growth. Their main objective is to control inflation by raising interest rates and restricting the money supply, even if this may slow economic expansion or increase unemployment in the short term.
Hawkish monetary policies are generally applied in contexts of high inflation or economic overheating, where central bankers feel that prices are rising too fast and need to be brought under control to avoid long-term imbalances. By raising interest rates, central banks make borrowing more expensive, which tends to curb consumption, investment and, consequently, aggregate demand. This reduction in demand then slows inflation.
The term hawkish is opposed to dovish, which refers to a more accommodating and flexible stance, aimed at stimulating growth through low interest rates and expansionary monetary policies.
A classic example of the hawkish approach occurred in the 1980s under the leadership of Paul Volcker, then Chairman of the US Federal Reserve. Faced with galloping inflation, the Fed aggressively raised interest rates to control inflationary pressures, although this plunged the US economy into a temporary recession. Nevertheless, this hawkish policy helped stabilize the economy in the long term by bringing inflation under control.
More recently, in the years following the COVID-19 pandemic, some central banks adopted a hawkish posture in response to rising inflation caused by supply chain disruptions and post-pandemic recovery. The US Federal Reserve, the European Central Bank (ECB) and other central banks gradually raised interest rates from 2022 onwards to curb price rises, marking a shift towards tighter policies after years of monetary accommodation.
A hawkish policy is often criticized for its potentially short-term recessionary effects, particularly on employment and growth. However, advocates of this approach believe that it is essential to control inflation before it gets out of hand, as persistent inflation can erode purchasing power, destabilize economies and undermine investor confidence.
To sum up, a hawkish stance in monetary policy means prioritizing the fight against inflation through a policy of high interest rates and monetary tightening, even if this means slowing economic growth. This approach is adopted by central banks in periods when price stability becomes an absolute priority, to the detriment of rapid economic expansion.
