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