Jargon of the week – dovish and hawkish

This week we will be looking at ‘dovish’ and ‘hawkish’ – two words that usually crop up when reading about interest rates. And with ongoing conversations about the Bank of England and US Federal Reserve potentially raising or lowering rates, we thought interest from our clients would be high at the moment.

What does dovish mean?

Dovish – or to be a dove – means to believe that low interest rates will improve the health of the economy. The term is usually reserved for Central bank members but can also be used to describe politicians or journalists who campaign for low rates.

Doves argue that low interest rates boost the economy by encouraging people to borrow and spend more. If interest rates are low, people are more likely to take out mortgages, loans or credit cards and spend more money. This is known as ‘loose’ monetary policy.

This extra spending creates more jobs across all sectors, from retail and manufacturing to housing. Extra demand causes prices to increase at the same time that higher employment is pushing up wages. This combination eventually leads to high inflation – this is where the ‘hawks’ come in.

Doves and hawks

The opposite of ‘dovish’ is ‘hawkish’. Hawks prefer higher interest rates as a way of keeping inflation in check, even at the expense of economic growth. High interest rates mean less borrowing and spending, which keeps prices stable. Increased rates also encourage consumers to save money, as they get better returns from cash savings accounts. This is known as ‘tight’ monetary policy.

Confused by financial jargon?

This really is the tip of the iceberg when it comes to financial jargon. If you  are stumped by a piece of jargon and you would like a clear explanation, why not search our new jargon buster? Or if you can’t find what you’re looking for, get in touch by calling us on 020 7189 2400 or emailing best@bestinvest.co.uk and we would be happy to clear things up for you.