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‘The Fed is reacting to exactly how the economy is acting’: ConnectOne Bank CEO

ConnectOne Bank CEO Frank Sorrentino joins Yahoo Finance Live to preview the Fed decision expected at 2pm ET today.

Video Transcript

AKIKO FUJITA: Let's bring in another voice into the conversation. We've got Frank Sorrentino, ConnectOne Bank CEO. Frank, it's good to talk to you today. It's been interesting to watch how the bond yields have moved ahead of this meeting. The 10-Year T-note actually falling just slightly at 1.49 right now. How do you think the market responds if we get a slightly hawkish [? bend ?] coming from the Fed Chair today?

FRANK SORRENTINO: I don't think there's going to be anything surprising that comes out of the meeting today. I think you put it well, actually, that I think they're going to talk about what they're going to talk about in the future. And I think the economy is-- or the Fed is reacting to exactly how the economy is acting, which is there is some inflation. There are pent-up demands. Some of these things are transitory. Others I have to question whether or not they're transitory.

So, you know, maybe commodities can go up and down and the prices of materials, if there were blockages or stoppages or whatever. But wages, they typically don't come down once they go up. And there's been a tremendous bit of pressure on wages moving up, especially in the bottom rungs. So, you know, it's going to be interesting to see how that moves its way through the system.

- Frank, I want to ask you, given your position as CEO of a bank, what kind of insight you have into what's going on in the economy, especially we got some numbers from the housing sector earlier today. I think housing starts are up, yeah, 3.6%. Yet new orders, they're down about 3%, so maybe a little low in the action. What's your visibility here?

FRANK SORRENTINO: Yeah, you know, we do a fair amount of construction here at ConnectOne Bank. And I will tell you our pipeline is incredibly strong. It's been strong for awhile. As we've known for quite awhile, even before the pandemic, there was a dearth of housing or new construction for housing. And I think that's really built up some momentum and some steam as we're moving through this time period.

Unfortunately, though, that's being impacted by the fact that you can't get materials. You can't get labor, very difficult for the building trades to attract the right type of labor into the marketplace. And so that's having a real impact. So some of the negative numbers you may be seeing may actually be because the demand is there, but we just can't offset the supply that's required. I know that's the biggest complaint that realtors have today is that there just isn't enough supply in the marketplace.

AKIKO FUJITA: Frank, following up on those comments you just made about wages, there seems to be an increasing thinking here that once those wages go up, as you've pointed out, not necessarily going to come down. How is that likely to test the patience of the Fed at a time when they've said, look, we're willing to let things run a little hot, but we think it's eventually, in terms of inflation, is eventually going to pull back a bit? If wages remain high, what's the calculation?

FRANK SORRENTINO: Well, look, one of the priorities of the Fed is full employment, right. So and full employment at higher wages is probably a good thing overall, over the long-term. And so I'm not overly concerned about that. I think the Fed is going to look at that as a positive. I think it's going to be one of the reasons why they let inflation run a little bit hotter and a little bit longer than they might have in the past, because there is going to be a resetting in the environment. And but I think it's going to be for good reason.

- I just want to kind of follow up on my previous question, talking about housing. What about the consumer, what are your insights for consumer spending, which we just saw the other day in the retail sales number for May, it was a surprise drop, a little bit worse than expected?

FRANK SORRENTINO: Yeah, look, I don't know about the numbers that are coming out just now. But I will tell you that all of our clients here at ConnectOne Bank are reporting record sales. They're doing incredibly well. People are expanding their businesses. Walk-in traffic is, I don't want to say it's at an all-time high, but it's near that. Restaurants have expanded dramatically and are reporting tremendous sales.

People are spending money. How long that's going to last, I can't say for sure. But it's pretty clear to me that people feel like they need to go out and do things. You can't buy a car. You can't buy a boat. You can't buy an airplane. Everything is either supply constrained or demand constrained. And so it's an interesting environment we find ourselves in today.

- That is very interesting. And guess what? I'm spending a lot of money, too. I'm sure a lot of our viewers are. Frank Sorrentino, ConnectOne Bank CEO, thank you for joining us.