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The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
As you mentioned earlier, that Hawk is cut by the Fed as expected, FED officials lowering their benchmark interest rate for a third consecutive time rain to the number of cuts they expect in twenty twenty five, signaling greater caution over how quickly they can continue reducing borrowing costs.
Here's FED J J.
Powell earlier at today's press conference.
I think that the slower pace of cuts for next year really reflects both the higher inflation readings we've had this year and the expectation inflation will be higher. You saw in the SEP that risks and and uncertainty around inflation we see as higher. Nonetheless, we see ourselves as still on track to continue to cut.
Okay, that of course is fedher J. Powell at today's press conference. Let's get into the FED decision. Michael Rosen is with us. He's chief investment officer at Angela's Wealth Management. They've got more than forty billion in assets under advisement and six point four billion in assets under management. Michael joining us from sunny and warm Santa Monica, California.
Kind of different here.
It's warm here, but it's rainy. And here in our Bloomberg and Director Broker's studio is Ira Jersey, Bloomberg Intelligence, Chief US interest rates Strategist. I want to start with you that hawkish ray cut that we were expecting safe to say we got it.
Yeah, we cut it, but the market clearly wasn't fully priced for it, because otherwise, you know, we wouldn't be selling off ten bases points in ten year yields.
These are big moves.
Yeah, these are These aren't massively large in recent times, but they're at the same time, if we were fully priced for it, we wouldn't certainly be seeing ten basis point move. Where we do see the things that we were talking about this before we went on air, is you look at the pricing for what the Fed's terminal rate is going to be, and we're now pricing only for about another thirty ish basis points thirty five basis points of.
Interesting little bit more than one move.
Exactly, so not very much. So that suggests that the market still thinks that in the market does overshoot sometimes, right. But at the same time, you know, the market's now thinking, hey, maybe the Fed is seeing what we're seeing, and that's that the economy is okay, and they're going to cut one more time, maybe in March, and then they'll be done.
So what specifically, in your view did traders here today from Fed Shair J. Powell that caused them to say, wait a second, we're not going to get as many cuts up, you know, apart from the summary of economic projections, but we're you know, the terminal rate could be just shy of you know.
Well he said that they can move cautiously like that was actually in the prepared remarks, right, So there's a difference. Right, there's the prepared remarks, which are something that you know, they obviously prepare beforehand, and then we see those right too, Yeah, and you get it, well no, no, you get it at two thirty, right, So he reads them at two thirty, and then we get the.
Seventy eight minutes of remarks he makes before the.
And it's basically the statement that you get at two o'clock expanded. It gives you more detail of what's in, what they were talking about, what they were thinking, and the like. So that's important because that's like the whole committee's view. Then when you start to get into the Q and A, that's much more J Powell, Right, And sometimes he's talking about for the committee, and sometimes he's talking maybe a little bit more.
Sometimes he's talking about some people.
Yeah, well, exactly.
Correct.
And we did have a descent today, right, So we did have a hawkish descent. I mean, remember this was the first time for anyway, I wouldn't worry about Yeah, but yeah, I were here to keep us in line.
Not exactly.
I think that that person took the sword basically for probably two or three other people who also didn't want to cut today, right, because a lot of times what happens at the FED, and if you talk to former FED you know, FED governors and and FED presidents, they'll tell you, like, you know, one person to sent thing probably means it's really two to four you know, and or you know don't like it, but they kind of go along with it anyway, just so it doesn't seem like,
you know, the whole committees out of way.
Michael Rosen, come on in on this.
Forgive us.
We're just kind of digging down with Ira here. But is this a market with the selling that we're seeing, Do you, I don't know, rethink the outlook here in terms of equity positions or do you say, hey, some of those names that we're getting a little expensive valuations high, it's actually a buying opportunity. What you're thinking on this?
Well, Carol, good to be with you. I actually think Ira has the right point. I think the market was priced to be more bullish perhaps than than actually it turned out to be, and we knew we would have a hawkish cut in race. But again, I think the market maybe was just a little bit too euphoric coming into this, and that's why maybe we're seeing the selloff, and you're seeing it in the areas that are much more interest rate sensitive, like real estate and consumer discretionary for example.
So do you buy on this? Are you saying that these are opportunities? Do you say, well, wait a minute, this is a bit of a reset and so maybe a different environment for equities going forward.
Yeah, I really don't think it's a reset. I think that I think actually the bond market's been been behind the curve, not the not the equity market. The uh. The the economy is strong, wages are up, incomes are up, profits are at record levels, and profits are really what drive equity markets over over time. So as long as profits are holding in and they are with a strong economy, we just saw, you know, an ease that that happened today.
Every indication suggests to me that profits will remain remain on an upward trajectory, and that is still bullish for equities. I think I would focus on areas that are generating the profits, and those have been Those are the big tech companies, the big platform companies that generate tremendous amounts of cash and profits, and those have been the leaders, and I think those will continue to be the leaders as long as the profits remain strong. Areas that are
more interest rates sensitive are going to be disappointed. With the economy strong, with inflation that has come down but not nearly enough, and in fact it's probably on the rise. At this point, interest rates are going to have to move higher. So anything interest rate sensitive is going to be facing a headwind.
All right, So unfortunately got about a minute left here, So saving thirty forty seconds for you, Iris, So what's kind of I don't know, like, how do you think about do we all just pack up and just wait until twenty twenty five? Or what's your next focal point here?
Well?
I think you know four and a half percent for four point four to nine if you want to get really wonky, is a very important technical level for ten year treasure yield. So we break that, the next big level is four point seven percent, right, So if we break right where we are now, you could wind up seeing a pretty large kind of follow on move stops getting hit, and you can wind up seeing some more volatility in the rate market in a.
Hurry, Michael saved actually fifteen seconds for you. So now do we start thinking about the next earnings? And I was just going to pull up JP Morgan. Dare I say January fifteenth earnings the next focal point just really quickly?
Yeah?
Absolutely, that'll once we get into the latter half of January, we'll start seeing the earnings come out and that will be the bellweather. I think you must move high from here though.
All right, Michael Rosen, thank you so much, and of course our own Ira, Jersey, guys, thank you so much.
You're listening to the Bloomberg Business Week Podcast. Catch us live weekday afternoons from two to five pm. Easter Listen on Apple, CarPlay and and Broud Auto with a Bloomberg Business Act, or watch us live on YouTube. This is Bloomberg Business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news as it happens. Bloomberg Business Week with Caro Messer and Tim Stenebek on Bloomberg Radio.
All Right, everybody, as you know, we are all in on the Fed today. Bank stock sensitive to monetary policy moves, really getting hit in a big way. I'm looking at the KBW Bank index falling down to its biggest one day drop in four months. I'm just checking. Is that the closed down?
Yeah, that's the close four point three percent of.
Yeah, because it looks like there it's continuing to drop I think in the aftermarket.
Just yeah, that's not surprising given what we heard from Trump just now and also concerns maybe that the sell off continues into tomorrow's session.
It's a really good point, right, I mean just kind of layering more and more stuff. We should put out shares of the publicly held New Jersey based Connect One Bank Corp. Which is the parent company of Connect One Bank. It too, not surprisingly like a lot of other names, a lot of banking names getting hit. Let me just pull up the closed down seven percent in today's session. We should point out that the bank has nine point eighty nine billion in assets, count small businesses and construction
companies among its customers. It's why we always love to check in with Frank Sorrentino. He's chairman and CEO of Connect One Bank or and he joins us from Englewood Cliffs, New Jersey. The company has about a nine hundred and eleven million dollar market cap. Company Frank, good to see you. What stands out for you today in today's FED decision? Your stock, like most bank stocks, getting hammered the whole market really across the board. Is there something ominous coming?
So great to be back with you, Carolynton.
I find it always fascinating that good news brings negative markets. Right, So a stronger economy and a place where people are doing well and strong employment and you know all the other things that define a more robust economy and the market sells off. So certainly, I don't think there was any surprise that today's bed action interest rates being lowered by twenty five basis points some rhetoric around future cuts not being as much as the market wanted, and I think that's what really drove.
A lot of the sell off today.
And so there was a lot of enthusiasm and optimism, certainly in the banking system about much lower interest rates. Well, that's not really going to happen. On the flip side, I think we're going to start to see potentially a steepening yield curve for banks, and so ultimately I think it will be a good thing.
So one reason we like to talk to you, and I know Carol's got some questions about bank net interest margin and stuff, but I want to go right to your clients because one reason we love talking to you. And if people were paying attention to you, gosh, anytime in the last two years when you've been on our program, then they wouldn't be surprised at how good the economy has been over the last couple of years, because you repeatedly were beating that drum, saying the companies that are
lending with us. The companies that are our customers, the small businesses, the construction companies, they are doing well right now. How are they doing compared to over the last two years?
For you?
Look, I think I've said this before. You know what we are seeing today. We are still in quite a robust economy. The vast majority of our clients are reporting good news. Is there some normalization going on within the economy today? You know from all the post COVID, the monetary policy, the expansion of the Fed balance sheet, liquidity
in the system. Sure, is that all beginning to normalize and we're getting to a more consistent with historical norms relative to interest rates and growth rates and everything else.
Yes, that's happening.
Is anyone really saying that the economy is weak today? I don't see it. People are still our clients are still saying it.
Is difficult to hire staff today.
People are demanding more money, Supplies cost more. There is a little bit of inflation still within the economy, but certain things are beginning to level off.
Rents are beginning to level off a bit.
Potentially, housing prices are reaching a point where they're becoming I don't want to say unaffordable, but they're certainly get reaching that that the edge of people's affordability spectrum. Interest rates are playing a role there. There's been a lot of of of of desire to see interest rates come down a bit. I don't think it's going to happen. I think we are in a very strong cycle and
I think it's going to continue certainly. If you if you think about everything that we're talking about doing in this next uh uh uh you know, next administration.
These things all have some inflationary components.
So we are going to see a strong economy first. So in my opinion, as far as I can say.
So, Frank, then why did the FED cut rates? Which is the kind of the question I think our Mike McKee ask, I feel like this is the five year old to j pout, Why so? Why so? Why why cut rates? If the economy is robust, Like you say.
Look, I think the data that the FED is looking was looking at. They're looking in longer term, you know, segments of time, and they have a what they want to get to, which is a neutral rate, and I think this is part of their program to get there. I don't serve on the FED, so I don't know
for sure. I don't know exactly what data they're looking at, but clearly they're seeing signs that they can get to a certain point in the interest rate curve on the short end that meets with the program that they believe brings us full employment, low inflation, and and and gets the economy to continue to move on. You have to say they've done a pretty good job up until now.
I don't know that anybody should have been surprised by today's action, but I understand the point, like why lower rates, But I don't think it's a month by month, you know, decision. I think these are decisions that they make with a bigger period of time in mind.
Well, people clearly surprised given the equity market reaction, in the bond market reaction. Hey, one thing we wanted you to weigh in on is the political environment, which we know that CEOs don't love to do, but this is the world we live in. We just learned that President Donald Try that he as opposed to the proposed short term government funding bill that has just been floated by Congress. This according to Fox News, who cited a conversation with Trump,
What does that mean to you? And what does the you know, another four years of Donald Trump mean to you, given what we learned about him twenty seventeen to twenty twenty one, how are you preparing for it?
Well?
Look, I again, I think where I try to look at the economy. I try to look at our clients. I try to look at how these things are going to impact them. And the only thing that concerns me about things like we heard today is creating a level of uncertainty. And you know, the one thing that business and the economy really wants is certainty. They want to understand where things are headed. How can they make plans, and how can they run go about running their lives,
running their businesses. And whenever there's any level of uncertainty, and you know, talking about the federal budget and whether we're going to fund it or not, and whether people are going to get paid you know, government employees, that creates uncertainty and that's generally just not good.
Hey just got about a minute left. So how frustrating is that for you? You've got to make decisions. I mean, you guys expanded your reach. Last time we talked with you in September, we talked about that. So you're growing, but I mean, how hesitant are you to do things because you're not quite sure the policy that's going to come from this White House? And got about thirty forty seconds.
You know what, whether it's this administration or any other administration, I look at you know, what's going on on the ground, and I am very bullish about what I see, certainly in our market area, certainly around what we're doing here as a nation. We are the greatest nation on the planet. We live in one of the greatest parts of the nation.
I'm very bullish about our economy. And so I make those decisions, and you know, we all here connect one make those decisions based on what our clients are telling us and what their needs are. And so we feel pretty good about where things where things have been, as you said, I've been saying the same thing for the last couple of years, and where things are going?
Are you as a robust and your outlook as you were three months ago part of the election, and again just got it about ten seconds.
I think things that I think there will be we will see some winners and losers as.
We move forward.
Okay, and it may be slightly less robust, but robust.
Them, the less, all right good stuff, as always Frank Sorrentino, Chairman CEO connect One Bank or This.
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