Must-know: Where will the doves and hawks find common ground?


Nov. 20 2020, Updated 11:49 a.m. ET

Why the Fed’s doves and hawks are likely to focus on finding common ground

A lot has been written about the differing views of monetary policy hawks and doves. As the economy recovers and the Fed moves towards normalizing monetary policy, there are points of view that are common to both hawks and doves. These points of view may shape future U.S. monetary policy over the next two years.

What are the key differences between the doves and hawks?

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The Fed has two major Congress-mandated goals which include ensuring full employment and keeping inflation at about the 2% level. In monetary policy parlance, a “dove” generally tends to focus more on the higher employment goal. The “hawks” are more concerned with the central bank’s inflation targets. Some central bank officials take a state-contingent, centrist stance.

The pursuit of higher employment, in terms of both labor and resources, often involves a loose monetary policy. Higher liquidity in the system, in turn raises inflationary flags. As a result, the Fed must balance its twin mandate of full employment and inflation.

Fed officials that are perceived as doves include Fed Chair, Janet Yellen, New York Fed Chief William Dudley, Chicago Fed Chief Charles Evans, Minneapolis Fed Chief Narayana Kocherlakota, Boston Fed Chief Eric Rosengren, San Francisco Fed Chief John Williams, Atlanta Fed Chief Dennis Lockhart, and Governor Daniel Tarullo.

Fed officials that are perceived as hawks include Philadelphia Fed Chief Charles Plosser, Dallas Fed Chief Richard Fisher, Kansas City Fed Chief Esther George, and head of the Richmond Fed, Jeffrey Lacker.

Fed officials that are perceived as centrists include Federal Reserve Bank of St. Louis head, James Bullard and Governor Jerome Powell.

Besides the above, there are three new Fed officials, whose stance is unclear. These include Cleveland Fed Chief Loretta Mester and governors Stanley Fischer and Lael Brainard.

This series is a continuation of an earlier Market Series published last week, Must-know policy overview: The doves of the FOMC. The last series focused on the doves of the Federal Reserve. This series will focus on the Fed’s “hawks,” “centrists,” and the new members.

Investor impact

Both stock (SPY) and bond (TLT) market investors take a keen interest in the views of Fed officials. Prospects of a rate increase or decrease tend to translate across different segments of the bond market including both high-yield (HYG) and municipal debt (MUB) among others. They also tend to impact the investing and financing decisions of both large-cap (OEF) and small-cap companies.

To learn more about the areas where the Fed’s doves and hawks can find agreement, please continue reading the next sections in this series.


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