Federal Reserve rate hikes have been controversial this year, with even President Donald Trump stating that rates have damaged the stock market and other areas of the economy. The Fed is currently pursuing an aggressive monetary policy and has increased rates three times this year. There is one more planned hike for 2018, and there is likely to be at least three more by 2020.

Former Federal Reserve Chairwoman, Janet Yellen, said this week that she thinks interest rates should go up “a bit more”.

Yellen Believes Fears for Markets Are Unreasonable

Yellen spoke during a presentation at the Charles Schwab Impact 2018 conference, telling attendees that “It’s appropriate for the Federal Reserve to be raising interest rates a bit more.” She also said that the markets were “accommodative”, indicating that even corrections and downturns still leave plenty of opportunities for investors.

In context of the stock market, she could have a point. Despite volatile first and third quarters, the NASDAQ composite index is still up 6.45% over the last 12-months, and the S&P 500 index is up 4.17% for the same period. The Dow Jones Industrial Average is also up, growing 6.41% since October 2017. If markets rebound after the midterm elections, then 2018 could be one of the best years on record.

Scott Minerd, the Chief Investment Officer of Guggenheim said this week that “Stocks are cheap based on forward multiples and should rally by 15%-20% from here unless policy uncertainty around China and tariffs remains in place.”

Most stock market analysts believe that tariffs between China and the United States have had more of an impact than Fed rate hikes.

Markets suffered losses early this week when Bloomberg broke the news that the White House was prepared to place tariffs on all Chinese goods. This could potentially happen if President Trump and Chinese President Xi Jinping do not reach an agreement in November.

Is it Fair to Blame the Federal Reserve for Stock Market Woes?

The Federal Reserve cannot ignore economic growth and leave interest rates at current levels. It would overcook the economy and the most likely outcome would be a recession. Underperformance on the stock market this month has not been triggered by Fed rate hikes.

However, there are many who believe that aggressive rate hikes do more harm than good. The words of Janet Yellen will not resonate with all investors or even the public. Higher federal interest rates increase all lending costs (mortgages, loans, credit cards), and can lead to higher consumer costs for people throughout the nation. A balance is needed, and it’s not yet clear whether the Fed has created the right one for today’s economy.