WEBVTT - Sorrentino Calls Fed Hike 'Inconsequential'

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<v Speaker 1>This is Bloomberg Business Week with Carol Messer and Bloomberg

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<v Speaker 1>Quick Takes Tim Stinovic on Bloomberg Radio. When we talk

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<v Speaker 1>about interest rates, we often talk about them in the

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<v Speaker 1>context of equities, a lot of times really high flying

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<v Speaker 1>tech companies. And we've seen the way that those high

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<v Speaker 1>flying you know, growth names have been getting beat up

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<v Speaker 1>over the last few months as we have learned and

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<v Speaker 1>really seeing that the Fed will be raising interest rates

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<v Speaker 1>and rising in an inflationary environment. But but what does

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<v Speaker 1>it mean for small businesses? What does it mean for banks? Well,

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<v Speaker 1>fortunately we're joined by Frank Sorrentino, the CEO at Connect

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<v Speaker 1>One Bank. It's a bank that is traded on the NASDAC.

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<v Speaker 1>It's got about two dozen branches across New Jersey. Frank,

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<v Speaker 1>how are you great? Great to be back, Tim, Hey,

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<v Speaker 1>great to have you with us. Um Hey, I wanted to,

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<v Speaker 1>uh just get your thoughts on, you know, not thinking

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<v Speaker 1>about this from a macro perspective, really thinking about it

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<v Speaker 1>from a micro perspective and thinking about your customers. What

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<v Speaker 1>does a rising interest rate environment mean for? Uh, the

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<v Speaker 1>the people who go to Connect One Bank, who used

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<v Speaker 1>connect One Bank, you know, we we we talk about

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<v Speaker 1>this almost daily. I'm having this sort of conversation with

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<v Speaker 1>clients practically every single day. Uh. You know, I think

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<v Speaker 1>the consensus, or at least the advice that I'm giving

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<v Speaker 1>to most of our clients here and connect One Bank,

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<v Speaker 1>is that, you know, the first couple of raises here

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<v Speaker 1>by the Fed are going to be inconsequential. We are

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<v Speaker 1>at a historic low relative to interest rates. If I

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<v Speaker 1>would have told you twenty years ago that we would

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<v Speaker 1>you know that you'd have to live with with four

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<v Speaker 1>or five percent interest rates, you would have been jumping

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<v Speaker 1>for joy. Yet here we are in a zero interest

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<v Speaker 1>rate environment with an economy that's growing, uh, you know,

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<v Speaker 1>mid mid to high single digits. So I tell people

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<v Speaker 1>not to panic so much about certainly the first hundred

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<v Speaker 1>or even two hundred basis points of increases. The Feds

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<v Speaker 1>talking about a twenty five basis point move tomorrow, uh,

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<v Speaker 1>and you know, the expectation will be that there will

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<v Speaker 1>be twenty five basis point moves for the rest of

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<v Speaker 1>the year at each of the Fed moves, so that

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<v Speaker 1>that will get us up a hundred and fifty basis

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<v Speaker 1>points or so. That is still historically a very low

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<v Speaker 1>place for us. To be with an economy that's growing

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<v Speaker 1>the way it is today, and so I still think

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<v Speaker 1>it pretends a very robust economy generally, but also for

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<v Speaker 1>our specific clients that you know, we do a lot

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<v Speaker 1>of construction, we do a lot of real estate, We

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<v Speaker 1>do a lot of small businesses in and around the

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<v Speaker 1>New York metro market. And so I believe that that

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<v Speaker 1>that first set of moves are really not going to

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<v Speaker 1>be that consequential. So do you think that it will

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<v Speaker 1>not have the effect of tamping down inflation? Because we

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<v Speaker 1>know that the FED is a dual mandate stable prices

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<v Speaker 1>and maximum employment. Prices are not stable with CPI at

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<v Speaker 1>seven point, but sub four percent is where we're seeing

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<v Speaker 1>the unemployment rate. So so unemployment by many measures is

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<v Speaker 1>has reached maximum employment. So does that mean that it's

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<v Speaker 1>going to take a while If these are inconsequential to

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<v Speaker 1>your customers, these interest rate increases, will it take a

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<v Speaker 1>while for inflation to be tamp down? Look, I think

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<v Speaker 1>the FED is a little bit behind the eight ball

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<v Speaker 1>here relative to the to the timing of these interest

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<v Speaker 1>rate increases. And I'm not blaming the Fed in any

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<v Speaker 1>way because there as we know, there've been there have

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<v Speaker 1>been a lot of macro events that have been going

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<v Speaker 1>on that they've been monitoring, and I know their data

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<v Speaker 1>data dependent, but certainly if interest rates rise twenty five

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<v Speaker 1>basis points, fifty basis points, seventy five basis points, it's

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<v Speaker 1>really not going to make a difference, uh in most

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<v Speaker 1>small businesses that that that equates to incredibly low interest

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<v Speaker 1>rates still. I mean, think about your home mortgage. You

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<v Speaker 1>know there are mortgage rates out there in the twos

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<v Speaker 1>and low threes. If they go to the high threes

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<v Speaker 1>or low fours, I mean, that's that's not that's not

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<v Speaker 1>that that is not going to tamp down the economy.

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<v Speaker 1>I think we're gonna need to see quite a bit more,

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<v Speaker 1>or in tandem, I think we're gonna need to see

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<v Speaker 1>some of the liquidity that's in the marketplace be dried up.

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<v Speaker 1>And to me, that's a more important issue. Well, let's

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<v Speaker 1>talk about it, because that's something that we've been talking

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<v Speaker 1>about on the program for the last few hours. I mean,

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<v Speaker 1>when does quantitative tightening come into play where we actually

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<v Speaker 1>see the FED balance sheet shrink? Why do you see

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<v Speaker 1>that as the more important piece here because there's a

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<v Speaker 1>lot of liquidity slashing around in the economy right now,

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<v Speaker 1>and there's a lot of stimulus, and that's really what's

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<v Speaker 1>driving a big part of the inflation that we're seeing

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<v Speaker 1>in the economy. It's just it's a natural state of

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<v Speaker 1>a lot of liquidity chasing not enough goods. And so

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<v Speaker 1>I think that the FED dialing back on that liquidity.

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<v Speaker 1>I mean, the Fed's balance sheet today is over nine

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<v Speaker 1>trillion dollars um. It doubled over the last twenty four

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<v Speaker 1>months or so, and so to me, that is way

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<v Speaker 1>more dramatic than a hundred basis points move in the

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<v Speaker 1>interest rate. And I mean at nine trillion dollars, I mean, realistically,

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<v Speaker 1>how much do you see that that balance sheet actually

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<v Speaker 1>shrinking by? Well, I don't. I don't know that it's

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<v Speaker 1>necessarily the quantity that it shrinks by, because I don't

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<v Speaker 1>think they can shrink it that all that fast. But

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<v Speaker 1>I just I think it's the job boning around the

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<v Speaker 1>fact that liquidity is going to start to dry up.

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<v Speaker 1>You will see sources of liquidity, uh that will no

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<v Speaker 1>longer be available for people. Credit will be a little

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<v Speaker 1>bit harder to come by. I think it will create

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<v Speaker 1>situations where businesses will have to make decisions differently than

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<v Speaker 1>they make today. I mean, just look at most banks

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<v Speaker 1>in the economy today have record low, um, you know,

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<v Speaker 1>record low credit losses, and I think that's directly tied

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<v Speaker 1>to the fact that there's you know, just an unlimited

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<v Speaker 1>amount of liquidity and the economy today. Frank, we only

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<v Speaker 1>have thirty seconds left with you. But what can you

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<v Speaker 1>say about residential mortgages. We talk so much about rising

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<v Speaker 1>real estate prices around the country. UM, will those slow

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<v Speaker 1>down a little bit? I think they will. I think

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<v Speaker 1>we've for for a lot of reasons. I think, uh,

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<v Speaker 1>you know, the prices of housing has gone up, certainly

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<v Speaker 1>in the market where Connect One serves. UM. I think

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<v Speaker 1>that in combination with interest rates going up a bit,

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<v Speaker 1>the combination of both of those things will slow down

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<v Speaker 1>the market a little bit. I still think it'll be

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<v Speaker 1>a robust market as we get to the end of

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<v Speaker 1>the year. All Right, Frank Sorrentino, CEO at Connect One Bank,

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<v Speaker 1>joining us on the phone from New York City. Connect

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<v Speaker 1>One Bank has branches throughout the state of New Jersey.

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<v Speaker 1>You're listening to Bloomberg Business Week, Tim Stentebeck and Katie Grayfeld.

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<v Speaker 1>This is Bloomberg radio