NEW YORK (TheStreet) -- When the Federal Reserve moves at last to raise interest rates, it could be a positive development for the stock market, according to Ethan Harris, Bank of America (BAC) Merrill Lynch's co-head of global economics research.
"In a way, hiking rates is the Good Housekeeping seal of approval from [Fed Chair] Janet Yellen," he said. "It's her saying the economy is in better shape and can sustain growth even with higher interest rates, so you could argue that it's actually a positive for the equity market."
Years of low rates and unprecedented central bank action have helped propel the major stock indices to record highs, causing investors to worry about how stocks will react to higher rates. The S&P 500 is up more than 200% since it hit its March 2009 low following the financial crisis.
"[A Fed rate hike] is an endorsement of improvement, rather than a Fed trying to hurt growth," he said.
While the Federal Open Market Committee decided not to announce a rate hike during its June meeting last week, Harris thinks it will be ready to pull the trigger in the coming months.
"I do think that by the time we get to the September meeting, the Fed will be ready to hike and will have seen enough improvement in the [economic] data," Harris added.
The economy continues to show strength. On Wednesday, the first-quarter gross domestic product growth rate was adjusted to -0.2%, compared to a previously reported 0.7% decline, according to the Bureau of Economic Analysis.