By SIMON CONSTABLE
When you hear finance people talking about doves and hawks, they usually aren't referring to our feathered friends. Most often they are describing the attitude of Federal Reserve policy makers toward inflation.
The Federal Reserve, aka the central bank of the U.S., has two mandates: full employment and a stable price level (i.e., low inflation). This dual mandate creates a tension—and a balancing act—because actions that focus on one side can worsen conditions on the other.
The hawks worry more about inflation, the doves about jobs.
"The problem is that the Fed can only do one thing at a time," says Milton Ezrati, senior economist and market strategist at asset manager Lord Abbett & Co., based in Jersey City, N.J. When the Fed prints more money to stimulate the economy, and thus create jobs—as it has done in spades the past few years—the risk that inflation could become a problem goes up. In general, inflation of about 2% a year is considered an acceptable rate. The jobs targets are less clear, but the current labor market is considered unsatisfactory.
Even the doves would admit that when inflation gets too high, the economy can't function. Still, in general, doves tend to say temporary blips in inflation above 2% are a price worth paying for more jobs.
Fed Chairman Ben Bernanke and Vice Chairwoman Janet Yellen are considered doves, while Dallas Fed President Richard Fisher and the president of the Philadelphia Fed, Charles Plosser, are considered hawks.
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