What are doves and hawks? Investing Explained

In this series, we break through the jargon and explain a popular investment term or theme. Here it is doves and hawks.

Why talk about birds?

Interest rates are rising in the UK, US and Europe as the Bank of England and other central banks try to deal with rising inflation. This means more focus on the point of view of the advisors and policymakers who have to decide on the cost of borrowing – decisions that have a huge impact on the economy.

Hawks have an assertive view of interest rates, believing that only aggressive upward moves will hold down inflation. Pigeons take the more conciliatory stance that the economy will benefit from a softer strategy on rates. The adjectives ‘hawkish’ and ‘dovish’ are used to describe the two positions.

These references to birds began to be widely used in regard to economics in the 1960s. But the terminology seems to have its roots in the war of 1812 between the UK and the US and its allies.

The hawks supported the hostilities, the doves opposed. The stereotyping of pigeons as peaceful and hawks as aggressive dates back to ancient times, although pigeons vigorously protect their territory.

Which view dominates in the UK?

The hawks are in the ascendant. earlier this month, the Bank of England’s Interest Rate Setting Committee (MPC) ordered a 0.75 percentage point hike in the key interest rate, the largest in 33 years. The base rate is at 3 percent, and many are speculating by how much further it will have risen. The bank’s governor, Andrew Bailey, who many believe should have gotten aggressive before he did, said interest rates should “rise less than is currently priced into financial markets.” This was considered surprisingly mild. But not all MPC members are convinced that hefty increases are the solution.

Who are the pigeons?

For now, the pigeons are outside members Silvana Tenreyro, a professor at the London School of Economics, who recommended a 0.25 percentage point increase, and Swati Dhingra, also an academic at the LSE, who went for 0.50 percentage points.

And who are the hawks?

Seven committee members, including Bailey, his deputy governors — Jon Cunliffe, Dave Ramsden and Ben Broadbent — and Huw Pill, the Bank’s chief economist, voted in favor of the increase.

Also hawkish were Jonathan Haskel, professor of economics at Imperial College Business School, and Catherine Mann, former chief economist at Citibank and the Organization for Economic Co-operation and Development.

Why the difference of opinion?

The pigeons may believe that rates of increase increase the risk of the economy slipping into an even deeper and longer-lasting recession. For the hawks, it is the only remedy for the inflationary crisis. But note that even Bailey admits to “flying blind”.

What now?

The MPC will meet again on December 15. The International Monetary Fund (IMF) has said inflationary pressures are easing and data from last week showed US inflation fell more than expected, falling to 7.7 percent in October from 8.2 percent a month earlier. , pushing stocks up and bond yields — a barometer for interest rates — down.

But much is conjecture until we learn more about the outlook for the economy in the November 17 fall statement.