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Customers factoring higher interest rates into transactions: Bank CEO

Consumers are starting to take the high cost of borrowing into account, according to ConnectOne CEO Frank Sorrentino. With the Federal Reserve planning on keeping rates higher for longer, Sorrentino says that "there's now a value and a dollar amount that has to be put on a budget line item that people, for the most part, discounted before," adding that the cost is starting to factor into decision making. Watch the video above to find out why Sorrentino says there still seems to be "pretty strong" confidence in the economy.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

AKIKO FUJITA: Well, the Fed voting to hold rates steady at its September policy meeting on Wednesday. The majority of members pricing in one additional 25 basis point hike. The central bank also sending a very clear message, rates may be higher for longer.

So how will these higher rates for longer impact the lending environment? We turn to Frank Sorrentino. He's CEO of connect one bank. Frank, it's good to talk to you today. You know, we have heard the fed chair allude to this credit tightening for some time. You're right in the thick of things. What are you seeing as we continue on with this higher rate environment?

FRANK SORRENTINO: You know, it's interesting, I think-- first off, thank you for having me on the program. But it's interesting, as we speak to our clients here in the New York metro market, for the first time in a very long time, people have to actually factor in the cost of money in their transactions. And so that's the real meaning of higher for longer.

It means that there is now a value and a dollar amount that has to be put on a budget line item that people, for the most part, discounted before. And that's impacting a lot of people's decision making, whether it's in business, whether it's, you know, a personal purchase. That higher cost of interest in every transaction is going to filter its way through the economy, which is one of the things the fed actually wants to see happen. We have not had a real cost of funds for a very, very long time.

JOSH LIPTON: And Frank, what is your take on the US economy right now? You have a really unique read on consumers, small businesses. Are you in that soft landing camp?

FRANK SORRENTINO: You know, I am definitely in the soft landing, more of a slow session than any sort of recession. Now my view may be a little bit jaded, because we are in the New York metro market here. And there's a lot of activity here. There's a lot of things going on. There are tremendous positives in this marketplace that we see every day with both our consumers and our small businesses.

The sentiment and the level of confidence in the economy going forward still seem to be pretty strong. The basic-- the basis for that is generally people have jobs. And the vast majority of people feel comfortable that their job is secure. And if they choose to switch jobs that there's something out there for them. So I think that's the baseline that we work from here. And it's a feel-good economy still to this day.

AKIKO FUJITA: Frank, what does that specifically mean on lending? I mean, what are particular sectors that you are seeing relative strength on?

FRANK SORRENTINO: So as-- as you know, ConnectOne does a lot of construction lending. We do a fair amount of commercial real estate and other types of lending for small businesses, business loans and whatever. And we are seeing a lot of confidence in certainly the housing market, the apartment market. There's still a lot of construction going on that we are still, as a nation, never mind this particular area, very housing-short.

There's a need for new homes, new houses, new apartments. And so those projects are continuing. The ability to get a project approved today is very difficult, and so those time frames are very exaggerated. And so, yes, the cost of money is playing a role. But we don't see it slowing down so much the number of units that are still being contemplated. I think we just saw last week maybe housing starts slowed up a little bit, but new building permits were at an all-time high.

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