Hawks vs. Doves: How Fed Policy Affects Jobs and Prices


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The end of the Great Moderation — a period of relatively low volatility, low inflation, and low unemployment that lasted from the mid-1980s until the late-2000s financial crisis — reinvigorated the eternal debate between monetary hawks and doves. Doves — those who, to some degree, prioritize unemployment concerns over inflation concerns — have ruled the roost at the U.S. Federal Reserve for the past several years, implementing an aggressive and unconventional monetary strategy despite the uneasiness of more hawkish board members.

As a debate, the dove-hawk divide can quickly become dense and complicated, but as a conversation it really only revolves around two pillars: unemployment and inflation. The Fed has a dual mandate stating that it must seek to achieve one (maximum employment) in the context of the other (price stability), but it is often difficult if not outright impossible to implement holistic policy.

This is particularly true at the zero bound where the target federal funds rate has been trapped since 2008, buried beneath quantitative easing. This program, through which the Fed purchases assets in the open market in order to drive down longer-term interest rates, is aimed at stimulating business activity and ultimately increasing employment. One of the costs of the program, though, is increased inflation expectations.