Reading a Central Bank Statement
The hawkish/dovish vocabulary — line by line
- Identify the specific words/phrases that signal hawkish vs dovish
- Spot the deliberate changes between consecutive statements
- Read a press conference for tone, not just content
Two FOMC statements separated by 6 weeks. One word changed: 'meaningfully' became 'modestly' describing inflation. EUR/USD moved 1.2% within an hour. CB language is a code — and the code is the trade.
Vocabulary that means business
Hawkish words: 'persistent', 'elevated', 'further tightening', 'committed', 'vigilant', 'restrictive for longer'. Dovish words: 'moderating', 'softening', 'patient', 'monitor', 'evolving conditions', 'in coming meetings'. Listen for what changes vs the previous statement — that's where the signal lives.
'Inflation remains elevated and we are committed to returning it to target. Further policy firming may be appropriate.' Translation: holding restrictive, may hike more.
'Inflation has moderated. We will continue to monitor evolving conditions and assess the cumulative effects of past tightening.' Translation: probably done, may cut.
The diff is the signal
Wall Street and Bloomberg run *redlines* of each new statement against the previous one. Even a single phrase added or dropped is a signal. The classic example: removing 'patient' from a statement that previously included it is a textbook hawkish shift. Watch the changes, not the boilerplate.
Previous Fed statement: 'further policy firming may be appropriate.' New statement: 'we will monitor incoming data.' Likely USD reaction?
- CB statements are written carefully — every word is chosen
- Hawkish vocab: persistent, elevated, vigilant, restrictive
- Dovish vocab: moderating, patient, monitor, evolving
- The diff vs the previous statement is where the signal lives
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