hawkish vs dovish: what do these terms mean in finance?

Hawks are known for high altitude flight reaching 15,000 feet while doves can only fly up to a height of around 500 feet.

A finance policy maker such as a central bank governor is hawkish when he is in favor of taking something higher (example taking interest rates higher).

On the contrary, the policy maker will be said to be dovish when he is in favor of taking something lower.

Sometimes even before a central bank monetary policy committee sit to agree on interest rate changes, investors can read the body language on top central bank staff and try to predict if they are taking a hawkish or dovish stance on rates.

Sometimes these top central bank officials attend occasions & give speeches where they talk about the economy (these speeches are usually found on the central banks websites & other media sources). Investors will usually listen closely to these speeches and try to deduce if the central bank is hawkish or dovish on the economy.

Hawkish is when those who formulate government fiscal policy (such as central banks) are leaning towards increasing interest rates. Dovish is the opposite.

A hawkish central bank is one that wants to raise interest rates or keep them high.

✔️ What they are trying to do:

Fight or reduce inflation

Slow down the economy if it’s overheating

✔️ How it affects markets:

Currency usually gets stronger (higher interest rates attract investors)

Stocks may fall because borrowing becomes more expensive

✔️ Example:

“If the U.S. Federal Reserve is hawkish, traders expect rate hikes.”

What Does “Dovish” Mean?

A dovish central bank wants to cut interest rates or keep them low.

✔️ What they are trying to do:

Boost the economy

Encourage spending and borrowing

✔️ How it affects markets:

Currency usually weakens (lower rates reduce investor demand)

Stocks may rise because borrowing becomes cheaper

✔️ Example:

“A dovish stance from the Bank of Japan means they may lower rates.”