On hawks, doves and pigeons

Hello from London. I’m Joel Suss, data journalist at the Financial Times and stand-in for Chris Giles today.

As the title of this newsletter suggests, I’ve been thinking about central banker types. What sets them on the course to see the world as a hawk or dove? Are these rate-setting personalities generally fixed or do they fluctuate? 

And if they do fluctuate, what bird species best suits that characterisation? The internet tells me that it is “pigeon”. Email me with your better suggestions — [email protected]. 

In the beginning, we are tabula rasa 

Central bank watchers have long characterised rate-setters by their stance on inflation and interest rates.

There are hawks — those that act aggressively on any hint of inflation and are preoccupied with moral hazard concerns. Then there are the doves — those who fixate more on maximising employment and output growth while tolerating greater inflation risk. Hawks prefer to keep interest rates high while doves prefer them low. Of course, hawks and doves lie on a spectrum, with mild forms of hawkishness and dovishness.

A lot of energy and time has been dedicated to defining rate-setter types in order to better anticipate where interest rates are headed.

And, indeed, this is a worthwhile pastime. A good deal of academic evidence suggests that the balance of hawkishness/dovishness on a monetary policy committee has a large impact on the resulting policy rate.

But how is it that highly educated, experienced policymakers can have widely different perspectives when presented with the same economic data?

A recent study argues that where and when a rate-setter was born, the level of unemployment or inflation experienced in formative years, and the university they attended — whether the economics department was rooted more in a Keynesian or Chicago tradition — matters a great deal.

For instance, Fed policymakers who had greater exposure to the Great Depression, with its sky-high levels of unemployment, were far more dovish later on, while those who had formative experiences during the “Great Inflation” of the 1970s or studied under monetarists at the University of Chicago were more likely to be hawks.

Pigeons

The above-mentioned study finds that a majority of Fed rate-setters are fixed in their positions, but about a quarter shifted at some point from hawkish to dovish or vice versa. Call them the pigeons for their ability to adapt to any environment. 

To me, pigeons are monetary policy heroes. It is these rate-setters not beholden to any specific monetary dogma who change their mind quickly in response to changing circumstances and are frequently proved right in time. 

Take as an example Andy Haldane, former chief economist at the BoE (and current FT contributing editor). He was considered a dove during the early part of his tenure on the MPC (which began in June 2014) but shifted to hawk controversially in June 2017.

Haldane then doubled down on hawkishness in February 2021 when he presciently warned of the need for much higher interest rates in the face of inflationary pressure during the Covid-19 pandemic.

To see this, I develop a hawks-doves index based on the speeches of all MPC members since 2014 with the help of large language models (more details on the development of the index here).

The index does a reasonable job at identifying the balance of hawkishness/dovishness on the committee, as well as delineating differences between members (for example, Silvana Tenreyro emerges as arch-dove, while Catherine Mann is the arch-hawk).

Haldane is highlighted with larger circles to see how his trajectory compares with peers.

The making of a pigeon

So who becomes a pigeon and how can we identify one beforehand?

This seems to be under-explored academically, but the data we have on Fed rate-setters suggests that pigeons come from outside the mainstream, tending to be non-economists and outside the usual-suspect schools.

Also, pigeons tend to reveal themselves during important historical turning points. For example, Alan Greenspan’s insight on productivity growth in the 1990s seems to have converted FOMC members from hawkishness to dovishness.

My further untested supposition on pigeonhood is that it has much to do with having an “open” personality, being relatively willing and able to change one’s mind and avoiding cognitive biases — similar to what makes a “superforecaster” super.

Who might be the best representation of a pigeon in the present moment? This can perhaps only be revealed post-hoc, but my guess would be Christopher Waller.

Early in his term (which began in December 2020), Waller was typecast as a hawk given his Haldane-esque early and strong stance to raise interest rates in the face of resurgent inflation. But he has since assumed leadership of the FOMC doves, transparently calling for rapid declines in interest rates following disinflationary progress in 2024 and a cooling US labour market.

While Waller’s colleagues have been making clear hawkish sounds recently after a string of poor inflation readings and Trump’s impending presidency, Waller has not flinched. On January 8 he said he believed “inflation will continue to make progress towards our 2 per cent goal over the medium term and that further reductions will be appropriate”.

The future looks hawkish

At the present moment, it is looking likely that Waller’s dovish stance will not prevail on the FOMC.

Indeed, based on the above and related academic work, the post-pandemic surge in inflation may well have a formative effect on the policymakers of the future, turning more hawkish.

There are other channels through which hawkishness might prevail. For one, the public may now be much more inflation-averse given recent experiences, which could lead to greater pressure on policymakers (both monetary and fiscal) to avoid inflation, perhaps at higher costs to employment and output.

Another is via political appointments — Republican presidents have tended to appoint more hawkish Fed governors, and Trump will have the ability to appoint two of them during his second term.

Trump may have another, indirect effect on rate-setter hawkishness, precisely because of heightened uncertainty around how inflationary his administration will be. A recent working paper finds that higher uncertainty around inflation has historically led to tighter FOMC policy — findings that are seemingly being confirmed right now at the Fed. 

While the world seems set to produce hawks, I’ll be hoping for more pigeons.

What I’ve been reading and watching

A chart that matters

Futures markets are now pricing in only a single cut by the FOMC this year, down from six quarter-point cuts in September. More striking, perhaps, is that markets are barely pricing any moves at all for the Fed in 2026.

It is not just US markets where the longer-term path of rates appears largely unknown. Expectations for the Bank of England and the European Central Bank in 2026 are equally mooted and have been essentially flat going into 2025.