What is... | January 8, 2014

What is a hawk (or dove) in financial markets?

In a matter of just a few months, a famous central banker switched from being known as a “hawk” to a being known as a “dove”. These terms do not relate to the actual birds but are related to stance on interest rates and monetary policy.


The terms hawk and dove – and the descriptions “hawkish” and “dovish” – can also be applied to institutions and language used by people of influence.

What is a dove?
The definition of a dove in financial markets can be likened to the characteristics of the bird – seen as the most peaceful and passive in the animal kingdom. In nature, doves would be unlikely to take aggressive action – and the same is true of doves in the market.

What is a hawk?
The definition of a hawk in financial markets can, unsurprisingly, also be likened to the characteristics of the bird. Hawks are seen as forceful and powerful in the animal kingdom – much more aggressive in attitude and stance than a dove.
Whether someone is a hawk or a dove, the viewpoint is not set in stone. Given it can refer to a position on monetary policy, it is entirely possible (and sometimes desirable) their stance will change as the economy changes.
In simple terms to be dovish relates to a loosening of monetary policy, such as lowering interest rates. And to be hawkish relates to a tightening of monetary policy such as raising interest rates.

Birds of a feather?
The concept of using hawks and doves to characterise human actions goes back many years.
The Dictionary of American History, according to an excerpt here, tells how they came into widespread use during the Vietnam War, but the roots are much older than that. It says the association of doves with peace is rooted in the biblical story of the Great Flood. On the other hand "War Hawk" was applied to advocates of war in the United States as early as 1798 when Thomas Jefferson used it to describe Federalists ready to declare war on France. Only more recently have the terms been applied to monetary policy.

Transforming from a dove to a hawk (or a hawk to a dove)
That famous central banker spoken of earlier is former Federal Reserve chairman Alan Greenspan. His reversal in stance followed Black Monday in October 1987, when, as detailed by Reuters, share markets around the world tumbled. Greenspan was initially hawkish in the summer of 1987, but rapidly turned dovish regarding Federal policy that lasted into the 1990s. Likewise, his successor chairman of the Federal Reserve Ben Bernanke has been called both a hawk and a dove.
The Economist writes that past US Presidents have felt it necessary to hire monetary-policy hawks like Volcker and Greenspan in a bid to reassure markets that the Federal Reserve would not give in to the political system’s inflationary bias. However, Janet Yellen the economist on track to be the next Federal Reserve chair is likely to become the first ever woman to run the Federal Reserve and is also the first acknowledged dove.

Learning from the animals
Doves and hawks are not the only animals used to describe financial markets.
Bulls and bears are also used. A “bull” market is typically one with rising prices and a “bear” market is typically one with falling prices. More animal terms include a butterfly spread which is a strategy used to sell call options whilst buying call options on the same security or futures contract.
Also a bear raid, is an illegal attempt to lower the market price of a security by heavy selling or short selling, carried out by large groups of traders – likened to an attempt by bears to acquire as much food as possible by rampaging and raiding.
During the global financial crisis, there was a lot of talk of an unexpected event as a “black swan” in reference to the Nassim Taleb’s book of the same name, and Ireland’s boom was referred to as the “Celtic tiger”.

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