When people say the U.S. Federal Reserve (or ‘Fed’) is hawkish or dovish, they’re referring to differing views on what monetary policy position the economy requires at that time.
The Fed has two objectives: to control inflation and maximize employment. But, these goals will frequently be at odds with one another.
A hawkish Fed will assume an aggressive stance that prioritizes keeping inflation low or getting it lower. It’s likely to raise interest rates even if that causes job losses. Hawks are focused on inflation. They favour raising interest rates to restrict the supply of money.
A dovish Fed supports economic growth and wants to achieve maximum employment. It seeks to lower interest rates or keep them low, because loose monetary policy increases the money supply. Doves favour low interest rates, to support economic growth.
The Fed gets labelled as being dovish or hawkish depending on which goal it prioritizes.
There can also be a neutral or “centrist” Fed, when one isn’t preferred over the other.
Not all central banks have an identical two-pronged mandate to that of the Fed.
The Bank of Canada’s mandate, for example, is to “promote the economic and financial welfare of Canada.” Still, a central bank’s stance on interest rates is widely heralded as being either dovish or hawkish depending on whether it favours lower or higher rates.
Given that 2022 has served up the highest inflation in decades, the Jerome Powell Fed has been said to be hawkish because it seeks to tighten the money supply to protect the economy from inflation and promote price stability.