With U.S. inflation cooling again in June for the third straight month, there’s earnest discussion of the Federal Reserve cutting interest rates in the near months ahead. We checked in with local financial institutions for their thoughts and what they’re hearing from their business clients on inflation and interest rates currently.
“Forecasting rates and inflation is challenging, however, we believe that the Federal Open Market Committee (FOMC) will remain data dependent with their decision making and desire to balance price stability and rising unemployment,” said Tom Rogers, executive vice president, chief financial officer and director of marketplace, ESL Federal Credit Union.
He explains that the market is pricing in two 0.25% cuts in Fed Funds by the end of the year as inflation seems to be slowing and unemployment has been increasing.
“Most businesses have been negatively impacted by the higher rates and inflationary climate, and we’ve worked to have regular conversations about how these conditions may affect their day-to-day business needs,” said Rogers, who stresses that regular communication with members is more critical in today’s economic climate to help them navigate challenges and to better understand the potential market impact on a business.
He explains that the recent higher interest rates of borrowing money for things like new equipment and real estate projects make it challenging for businesses, but on a positive note, he is seeing more businesses place a greater focus on retaining cash for a future safety net or flexibility and earning higher interest rates on their deposits.
“We know that customers look for stability in interest rates and prices so they can better plan for new projects or investments,” Rogers said. “At ESL, one of our strongest assets is being able to work with our members to help them navigate any situation and find the best possible solution. Our experience in working with businesses of all sizes gives us the ability to know which path and resources will work best for each one.”
At Canandaigua National Bank & Trust, Charles J. Vita, executive vice president and chief lending officer, says the U.S. Treasury’s yield curve — which graphs the relationship between bond yields and bond maturity — has had an impact on how business clients borrow.
The yield curve has been inverted since 2022, which means that earnings on certain shorter-term Treasury securities are higher than those of longer-term securities.
“We are trying to use the inverted yield curve to our clients’ benefit,” Vita said. “So even though interest rates are higher, we’re trying to bring them out on the long side of the yield curve, and we use products like interest rate swaps and hedging tools to help reduce client interest rates and interest rate risk and make things a little more affordable.”
Vita says the bank has spent a lot of time digging in with their business clients to understand their business models and challenges, which are often increased costs of labor, materials, production and real estate. With this personalized understanding, the bank can then use loan structuring and other tools to help mitigate or manage these challenges.
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“Canandaigua National Bank has been really fortunate in that we’ve been able to maintain our lending when some banks have pulled back,” Vita said. “Education, advice, sitting with our clients and really spending time with them has been so important.”
Tim Brown, Rochester regional director of Evans Bank, who also heads up the bank’s commercial lending team in Rochester, finds his clients are cautiously optimistic that interest rates may temper soon.
“Even though interest rates compared to 2023 are down slightly, our commercial clients still think they’re too high,” Brown said. “The best thing we can do is stay in touch with them. Part of being a really good banking partner is listening to what your clients have to say.”
Brown notes that while businesses are all operating in the same macroeconomic conditions, each client’s situation is different and requires a thorough understanding from their banking team that can best happen through listening.
Evans recently added two more commercial relationship managers and Brown says the bank sought out individuals who are strong listeners and trusted advisors. The bank also provides opportunities for its commercial clients to get together to talk about the common issues they share, even in different industries.
At a recent event at a Rochester Red Wings game, the game was called off due to rain, but over a dozen invitees stayed at the stadium for over three hours to talk amongst themselves and with Evans Bank advisors.
“We’re right there with them, talking to them and seeing how we can serve their needs,” Brown said.
At Genesee Regional Bank, Philip L. Pecora, president and CEO, also sees signs the Fed may start lowering rates in the next few months but isn’t relying on it.
“We tell our business clients who are thinking about investing in a new project or equipment or buying an apartment building, for example, you have to do it based on what you know today,” Pecora said. “That’s how we run our own business. We assume rates are not going to change, even though we think more than likely they will fall.”
Currently, Pecora is seeing more of an inflationary impact and financial challenges on retail customers than commercial ones.
“I think because people have tried to sustain the spending that they were so accustomed to during the COVID years credit card balances are higher and that’s starting to put some stress on the consumer,” Pecora said.
He also sees residential home buyers facing significant challenges, especially first-time home buyers.
“We all know Rochester has been one of the tightest housing inventory markets in the country,” Pecora said. “It’s been a big, big challenge. Prices have gone up a lot and when you combine the higher prices with the fact that mortgage rates are higher it’s really making housing unaffordable for a lot of folks.”
Caurie Putnam is a Rochester-area freelance writer.
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