What is hawkish economic policy?

About:

• Hawkish economic policy refers to a stance taken by central banks or other economic policymakers that emphasizes the importance of controlling inflation, often at the expense of other economic goals like full employment or economic growth.
• Policymakers who are “hawkish” tend to favor higher interest rates to keep inflation in check and maintain price stability.
• This approach is often contrasted with “dovish” economic policy, which prioritizes stimulating economic growth and reducing unemployment, even if it means tolerating higher inflation.

Key characteristics of hawkish economic policy:

• Higher interest rates: Raising interest rates to make borrowing more expensive, which can reduce spending and investment, thereby cooling off an overheating economy.
• Tightening monetary policy: Implementing measures to reduce the money supply or slow its growth, which can help control inflation.
• Inflation targeting: Prioritizing low inflation as a primary goal, often setting explicit inflation targets and taking actions to ensure they are met.

Reducing economic stimulus: Cutting back on fiscal or monetary stimulus measures that could spur inflation, such as reducing government spending or unwinding quantitative easing programs.

Q1: What are bonds?

A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental) for a set period in return for regular interest payments. The time from when the bond is issued to when the borrower has agreed to pay the loan back is called its ‘term to maturity’. The bond issuer uses the money raised from bonds to undertake various activities, such as funding expansion projects, refinancing existing debt, undertaking welfare activities, etc.

Source: US Fed decision: Staying hawkish

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