Hawkishness is when a central bank becomes more focused on strengthening their country’s tender. In periods of expansion, a central bank will be more encouraged to take a hawkish stance on their currency. This is done through the manipulation of interest rates and money supply. Although money supply is done by the treasury system in the US, the Fed can still influence the printing of money to help stimulate the economy. Iff a central bank wanted to raise interest rates, this would make borrowing costs higher, mortgage rates higher, decrease consumer spending, and cause what is called an economic contraction. Although this might seem counterintuitive on the surface, it’s meant to help the economy in the long term as it brings more value to the nation’s dollar by bringing inflation down. In the US, the Federal Reserve is in the middle of an unwinding process which entails bringing interest rates higher to battle an concerningly high inflation rate caused by economic stimulus during the 2020 pandemic. In the short term, hiking interest rates will cause some sort of economic slowdown, but it is intended to keep the economy from collapsing in the long run. After all, high inflation is one thing that will destroy a nation’s domestic GDP and hurt international trade. There are times for both expansion and contraction which is why monetary policy is a countercyclical process. It’s all a balancing act to maintain a healthy equilibrium between a nation’s economic strength and dollar demand.