The U.S. consumer is ‘in the best shape they’ve probably ever been’: ConnectOne Bank CEO

ConnectOne Bank CEO Frank Sorrentino joins Yahoo Finance Live to discuss the latest Fed rate hike and the current state of the U.S. consumer.

Video Transcript

[AUDIO LOGO]

JEROME POWELL: We need to be honest with ourselves that there's-- you know, inflation, 12-month core inflation, is 6% CPI. That's three times our 2% target. Now, it's good to see progress, but let's just understand, we have a long ways to go.

SEANA SMITH: That was Fed Chair Jay Powell, reiterating his hawkish stance and saying that more rate hikes are going to be needed. The markets selling off on that today. The Dow headed for its biggest decline that we've seen in just about three months. So here to discuss what this means for the banking sector, we want to bring in Frank Sorrentino, ConnectOne Bank CEO. Frank, it's great to see you. So clearly, Wall Street's a little bit worried about the hawkish stance that we got from Fed Chair Jay Powell yesterday, the fact that the Fed remains committed to raising rates in order to get inflation under control. What's your reaction to what we heard and today's selloff?

FRANK SORRENTINO: Well, I don't think it should be any surprise to anyone. And by the way, thank you for having me on the show again, Seana. But it should really be no surprise. The Fed has been pretty consistent around this idea that maybe they were a little bit late to the party. And now, they have some real work to do. And they're going to continue to do it until the job is done.

And so as we all know, part of it is what the Fed actually does and part of it is what the Fed says. And the Fed is absolutely telegraphing a very hawkish stance going forward. No surprise at the markets reacting to it tonight.

DAVE BRIGGS: A determination-- and good to see you, Frank. A determination to get the job done. Despite what it appears to be forcing a recession, do you think we're headed towards one early '23?

FRANK SORRENTINO: So look, there's a whole big difference between rising rates, the qualitative tightening, the Fed's commentary, and what's actually happening on the ground. We are definitely seeing inflation subsiding in areas where we want to see those things happening. But there are issues that are probably global and macro that are going to be difficult to control. The issues that are happening around the globe, some of the conflict, what's happening with energy, these things are definitely impacting all the insourcing that we're doing here in the United States, but talking about bringing jobs back into the United States. These things are inflationary.

You know, we just went through a pandemic. We had supply shortages. There are lots of things that are going on that are going to be more difficult to bring under what the Fed calls control than may be possible. I do think that the Fed understands, at some point, they're going to have to level off their rate structure. And I think we saw a little bit of that yesterday. To me, there's actually some good news that they're beginning to take their foot off the pedal.

When you think about the US economy today and you think about the US consumer, they're in the best shape that probably they've ever been.

SEANA SMITH: That's a bit of good news. That was positive-- the most positive thing we've heard since we started the show. Frank, when you, I guess, taking that into account and comparing that then to what we've seen play out in the market, because I would argue Wall Street is viewing this very differently, when you take a look at the consumer today, what is the reason then to remain positive in the face that inflation, albeit improving, still remains extremely high on a historical basis?

FRANK SORRENTINO: So look, you know, again, let's move away from what maybe the Fed is actually saying and let's look at the facts on the ground. Here at ConnectOne Bank, our clients are telling us and we're seeing by working with our clients and looking at them that they probably have the best balance sheets that they've ever had, both consumer and business wise. There's more liquidity on their balance sheets than probably they've ever had. They have more equity in their accounts, whether it's in the markets or whatever in their businesses, the values of their business.

We still have a labor shortage. It is difficult to hire. All businesses today are reporting a difficulty. And this is one of the big challenges that the Fed's going to have is in order to really break the back of inflation, they may have to do some damage to the employment numbers. And that's a very, very sensitive area. But all of our clients are reporting difficulty and hiring high-quality people to fill jobs.

People have higher wages today than they've had in the past. We're seeing that in all of the due diligence we do on our clients. And so when you-- and we just heard, you know, retail sales are up. People are out shopping. They're out in restaurants. They're going out and doing things. So yes, inflation is headed down, and it will continue to head down. It is what my belief is. Oil is now back to pre-pandemic levels.

I believe that we will see inflation come down a bit. And yes, the market has reacted. But let's see what happens tomorrow or the next day or whatever. The market has a habit of jumping ahead of the news very quickly and then changing its mind. But when you talk to the clients on the ground, you talk to people who are running their businesses, things are still pretty good.

DAVE BRIGGS: A bit. Interesting to say inflation will come down a bit. It doesn't sound like 2%, the target. What are you telling clients given the uncertainty of the environment at '23?

FRANK SORRENTINO: Yeah. With all that's going on around the globe and here in this country and what we've just gone through relative to the COVID pandemic, I find it hard to believe that we're going to get back to a less than 2% inflation world. And I do believe that the Fed will be happy if we get sub 4%. And if we get into that, let's call a 2% to 4% range.

I think that last-- you know, it's sort of like losing weight, you know, the first chunk is easy. And then as you go along, it gets harder and harder. I think that last little bit to get closer to 2% is going to be very, very difficult to do with some of the transformative things that are going on in this environment. That being said, if we got closer to 3, I think everybody would be very happy.

SEANA SMITH: I think people would be very happy if we get closer to 3, considering where it is today. Frank Sorrentino, always great to have you, ConnectOne Bank's CEO. Thanks so much for joining us.