Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. When we talk
Speaker 1: about interest rates, we often talk about them in the
Speaker 1: context of equities, a lot of times really high flying
Speaker 1: tech companies. And we've seen the way that those high
Speaker 1: flying you know, growth names have been getting beat up
Speaker 1: over the last few months as we have learned and
Speaker 1: really seeing that the Fed will be raising interest rates
Speaker 1: and rising in an inflationary environment. But but what does
Speaker 1: it mean for small businesses? What does it mean for banks? Well,
Speaker 1: fortunately we're joined by Frank Sorrentino, the CEO at Connect
Speaker 1: One Bank. It's a bank that is traded on the NASDAC.
Speaker 1: It's got about two dozen branches across New Jersey. Frank,
Speaker 1: how are you great? Great to be back, Tim, Hey,
Speaker 1: great to have you with us. Um Hey, I wanted to,
Speaker 1: uh just get your thoughts on, you know, not thinking
Speaker 1: about this from a macro perspective, really thinking about it
Speaker 1: from a micro perspective and thinking about your customers. What
Speaker 1: does a rising interest rate environment mean for? Uh, the
Speaker 1: the people who go to Connect One Bank, who used
Speaker 1: connect One Bank, you know, we we we talk about
Speaker 1: this almost daily. I'm having this sort of conversation with
Speaker 1: clients practically every single day. Uh. You know, I think
Speaker 1: the consensus, or at least the advice that I'm giving
Speaker 1: to most of our clients here and connect One Bank,
Speaker 1: is that, you know, the first couple of raises here
Speaker 1: by the Fed are going to be inconsequential. We are
Speaker 1: at a historic low relative to interest rates. If I
Speaker 1: would have told you twenty years ago that we would
Speaker 1: you know that you'd have to live with with four
Speaker 1: or five percent interest rates, you would have been jumping
Speaker 1: for joy. Yet here we are in a zero interest
Speaker 1: rate environment with an economy that's growing, uh, you know,
Speaker 1: mid mid to high single digits. So I tell people
Speaker 1: not to panic so much about certainly the first hundred
Speaker 1: or even two hundred basis points of increases. The Feds
Speaker 1: talking about a twenty five basis point move tomorrow, uh,
Speaker 1: and you know, the expectation will be that there will
Speaker 1: be twenty five basis point moves for the rest of
Speaker 1: the year at each of the Fed moves, so that
Speaker 1: that will get us up a hundred and fifty basis
Speaker 1: points or so. That is still historically a very low
Speaker 1: place for us. To be with an economy that's growing
Speaker 1: the way it is today, and so I still think
Speaker 1: it pretends a very robust economy generally, but also for
Speaker 1: our specific clients that you know, we do a lot
Speaker 1: of construction, we do a lot of real estate, We
Speaker 1: do a lot of small businesses in and around the
Speaker 1: New York metro market. And so I believe that that
Speaker 1: that first set of moves are really not going to
Speaker 1: be that consequential. So do you think that it will
Speaker 1: not have the effect of tamping down inflation? Because we
Speaker 1: know that the FED is a dual mandate stable prices
Speaker 1: and maximum employment. Prices are not stable with CPI at
Speaker 1: seven point, but sub four percent is where we're seeing
Speaker 1: the unemployment rate. So so unemployment by many measures is
Speaker 1: has reached maximum employment. So does that mean that it's
Speaker 1: going to take a while If these are inconsequential to
Speaker 1: your customers, these interest rate increases, will it take a
Speaker 1: while for inflation to be tamp down? Look, I think
Speaker 1: the FED is a little bit behind the eight ball
Speaker 1: here relative to the to the timing of these interest
Speaker 1: rate increases. And I'm not blaming the Fed in any
Speaker 1: way because there as we know, there've been there have
Speaker 1: been a lot of macro events that have been going
Speaker 1: on that they've been monitoring, and I know their data
Speaker 1: data dependent, but certainly if interest rates rise twenty five
Speaker 1: basis points, fifty basis points, seventy five basis points, it's
Speaker 1: really not going to make a difference, uh in most
Speaker 1: small businesses that that that equates to incredibly low interest
Speaker 1: rates still. I mean, think about your home mortgage. You
Speaker 1: know there are mortgage rates out there in the twos
Speaker 1: and low threes. If they go to the high threes
Speaker 1: or low fours, I mean, that's that's not that's not
Speaker 1: that that is not going to tamp down the economy.
Speaker 1: I think we're gonna need to see quite a bit more,
Speaker 1: or in tandem, I think we're gonna need to see
Speaker 1: some of the liquidity that's in the marketplace be dried up.
Speaker 1: And to me, that's a more important issue. Well, let's
Speaker 1: talk about it, because that's something that we've been talking
Speaker 1: about on the program for the last few hours. I mean,
Speaker 1: when does quantitative tightening come into play where we actually
Speaker 1: see the FED balance sheet shrink? Why do you see
Speaker 1: that as the more important piece here because there's a
Speaker 1: lot of liquidity slashing around in the economy right now,
Speaker 1: and there's a lot of stimulus, and that's really what's
Speaker 1: driving a big part of the inflation that we're seeing
Speaker 1: in the economy. It's just it's a natural state of
Speaker 1: a lot of liquidity chasing not enough goods. And so
Speaker 1: I think that the FED dialing back on that liquidity.
Speaker 1: I mean, the Fed's balance sheet today is over nine
Speaker 1: trillion dollars um. It doubled over the last twenty four
Speaker 1: months or so, and so to me, that is way
Speaker 1: more dramatic than a hundred basis points move in the
Speaker 1: interest rate. And I mean at nine trillion dollars, I mean, realistically,
Speaker 1: how much do you see that that balance sheet actually
Speaker 1: shrinking by? Well, I don't. I don't know that it's
Speaker 1: necessarily the quantity that it shrinks by, because I don't
Speaker 1: think they can shrink it that all that fast. But
Speaker 1: I just I think it's the job boning around the
Speaker 1: fact that liquidity is going to start to dry up.
Speaker 1: You will see sources of liquidity, uh that will no
Speaker 1: longer be available for people. Credit will be a little
Speaker 1: bit harder to come by. I think it will create
Speaker 1: situations where businesses will have to make decisions differently than
Speaker 1: they make today. I mean, just look at most banks
Speaker 1: in the economy today have record low, um, you know,
Speaker 1: record low credit losses, and I think that's directly tied
Speaker 1: to the fact that there's you know, just an unlimited
Speaker 1: amount of liquidity and the economy today. Frank, we only
Speaker 1: have thirty seconds left with you. But what can you
Speaker 1: say about residential mortgages. We talk so much about rising
Speaker 1: real estate prices around the country. UM, will those slow
Speaker 1: down a little bit? I think they will. I think
Speaker 1: we've for for a lot of reasons. I think, uh,
Speaker 1: you know, the prices of housing has gone up, certainly
Speaker 1: in the market where Connect One serves. UM. I think
Speaker 1: that in combination with interest rates going up a bit,
Speaker 1: the combination of both of those things will slow down
Speaker 1: the market a little bit. I still think it'll be
Speaker 1: a robust market as we get to the end of
Speaker 1: the year. All Right, Frank Sorrentino, CEO at Connect One Bank,
Speaker 1: joining us on the phone from New York City. Connect
Speaker 1: One Bank has branches throughout the state of New Jersey.
Speaker 1: You're listening to Bloomberg Business Week, Tim Stentebeck and Katie Grayfeld.
Speaker 1: This is Bloomberg radio