Quarterly Market Insights: A Special Talk CNY Series-2025 Q2 with Ken Entenmann

In this episode of Quarterly Market Insights, a special series part of the CenterState CEO’s Talk CNYpodcast, presented by NBT Bank, the conversation dives deep into the economic forces shaping Central New York and beyond in the second quarter of 2025.

NBT Bank’s Chief Economist and Chief Investment Officer Ken Entenmann breaks down the market’s record highs, analyzes the easing of geopolitical tensions, and explores how potential tariff extensions, Fed rate cuts, and the Big Beautiful Bill could affect the economic landscape.

Also, tune in to this episode of Quarterly Market Insights to hear what business leaders should be watching this summer.

CONNECT

CenterState CEO Website | Facebook | Instagram | LinkedIn | YouTube

Host: Andrew Fish LinkedIn 

NBT Bank LinkedIn 

Transcript

0:00

Welcome to Quarterly Market Insights, a special series part of CenterState CEO's podcast Talk CNY, presented by NBT Bank. This quarterly series will provide a data-driven economic analysis and how it could impact you and your business. Well, Ken, welcome back to another episode of Quarterly Market Insights. Excited to have the conversation today. It's great to be here. As always, it's crazy. The last time we met, we were in the midst of a record day because we had seen significant losses, and then almost all of those significant losses were regained in that same day because of the pause on the tariffs. Here we are recording on another record day. Yes. I do think the recovery is not unreasonable in that the worst case scenario behind tariffs has not come to fruition. When we met last, it was the worst-case scenario. One hundred and fifty percent, forty-five percent tariffs on China last night and this morning announcement of a framework, whatever that means, of a trade deal with China, where we're going to get rare earths and they're going to get lightened tech. I think that's good evidence that the worst case is not coming to fruition, which is a good thing. So it's allowed the market to recover. I think some of the other geopolitical risks, namely Russia, Ukraine, and obviously, most recently, Israel and Iran, appear to be self-contained right now. It's not expanding. So the worst-case scenarios where Russia and Ukraine were going to cause World War III or there was going to be this major conflict, boots on the ground in the Middle East, at least for the time being, seems to be self-contained. And that's a good thing. And so there's been kind of a ratcheting down of super high-risk expectations, and now those risks have been dampened a little bit. So that's a good thing. And now we're left with plain old economic analysis, and what is the economic growth going to be, and what does that mean for interest rates going forward? I think over the course of the next three or four weeks, we're going to get a lot more clarity on that. Absolutely, yeah. We're seeing some record highs for the market, and as you said, those risks that could otherwise maybe create some downward pressure or create some panic really aren't doing that. I think it's also important to note that, as you said, the interest rates and what's going to be happening. Tell us a little bit about what you're hearing around that in terms of the Fed. I know that we have two kind of lines of thinking as it relates to that. The chairman kind of came out a little differently here recently than what maybe some folks were thinking, but what are we looking at? Yeah, so we've had three Fed governors earlier in the week come out and say if the inflation numbers stay relatively self-contained. We did get a Personal Consumption Expenditure (PCE) index. It's really important. That's the Fed's favorite benchmark for inflation. The PCE core came in at 2.7, which was a little bit higher. They expected 2.6, but we're all right in that ballpark. So the good news is inflation is not getting worse, at least not yet. I personally think it's a little too premature to declare victory on inflation, and that's the rub, right? We've seen softening in some of growth statistics. Some of the labor data shows while there's not layoffs, the rate of hiring has slowed. So we have a little bit of slowing on the growth side, which would argue for rate cuts, but we still have sticky inflation, which would argue for staying pat. The inflation numbers today, I don't think give the Fed a green light. And then Chairman Powell, in his testimony in front of the Senate and the House, was a little bit more hawkish on inflation, saying we really have to wait to see. Personally, I think he's right. If you think about the tariffs, they were instituted on August 2nd. There was a 90-day moratorium on the eighth. There has only been two trade deals, the UK and now a framework with China. But by the way, that 90-day moratorium, expires... July... In July. July 9th in theory. And we haven't had this flood of trade agreements. So I think there is some uncertainty. The other thing with inflation when it came to the tariffs were companies did a great job of front-running it and expecting it. So there was a massive inventory build in the first and second quarter. So prices haven't really been affected because we've had inventories, and we don't know the ultimate state of tariffs. It takes a good six weeks to get the goods on a ship and get it over here. So it's not clear to me that the material impacts of tariffs haven't impacted the economy yet. And that's largely what Chairman Powell is saying, saying we got to be a little bit more cautious. So I think it'll be very interesting when we all come back next weekend, the tariffs come due, the Big Beautiful Bill for taxes. We can talk about that. That is supposed to be due on July 4th, which has become pretty contentious even within the Republican party, not even Republican, Democrat. So there's uncertainty on the Big Beautiful Bill, which is important because that's where the pro-growth initiatives are supposed to come from. Certainty on taxes, deregulation. So that's kind of on pause. And then the tariffs. If we don't have a slew of agreements, does President Trump come and say,'Oh, we're making progress. Kick the can down the road another 90 days.' That would be my bet. Or does he say, 'Hey, we gave you 90 days. You didn't come to the table. We're going to put the hammer down.' If that's the case, the market's going to be in a tizzy because we're going well, the worst-case for tariffs is gone. We kind of went to a best case, and now do we ratchet back and forth? So I would caution people to be prepared for some volatility in the next couple of weeks. Makes sense. And I think it's consistent with what we've been kind of talking through and talking about this year, a year of a lot of significant change and uncertainty. I think I want to circle back a little bit to the geopolitical risk we were talking about, and something that was really interesting and I think of note was how the impacts of what happened in Iran and with that conflict for those few days, weeks with Iran and Israel is how much it didn't impact the price of oil. Normally, in the past, something like that, anywhere in the Middle East, anything that potentially could have an impact on that supply chain has had massive impacts on oil prices per barrel and all those things, and we really didn't see that this time. No, and I think I listened to the CEO of Exxon talking on this topic, and honestly, it's a result of technology that particularly fracking here in the United States, but fracking technology in short the world, the supply of oil, and let's even stretch it further, we talk about oil prices is kind of the benchmark, but it's natural gas, which is a byproduct of it. We're kind of a wash in oil and gas right now. When you go back to our grandfather's economy in 1973, when there was the Arab oil embargo, there was no way to substitute other sources of supply. So there was this great economic choking effect that resulted in a horrific, one of the deepest recessions in the history of the country in 73, 74. Then throughout the eighties, we had these kind of points of military conflict that sent the oil prices higher. So, oil prices went from 60 to 75, and especially getting the U.S. involved with the Bunker Busters last week. In the past, oil prices would be 120. Instead, they went from low sixties up to 75 as a result. Now that the results have come through, there's a ceasefire. I mean, oil is trading at $65 a barrel today. I just don't think it's our grandfather's economy. The technology as it relates to getting natural resources in general, and oil and gas specifically, out of the Earth's crust. We're so much better at it that I don't think oil prices, while they're obviously critically important, energy costs are critically important, especially as we go into AI and cryptocurrency, the demand increases. But for right now, the supply is really, really solid. And that's why I think it hasn't had the impact that it's had historically. I think for us in New York, it's a really interesting conversation around energy, too. It's a bit of a non-sequitur here, but last week we had an announcement from Governor Hochul that she's directing the energy department to look at the development of a fourth nuclear plant in Upstate New York in addition to the three that are currently being operated by Constellation. That is something that we've talked about in the past. As we're experiencing this growth with Micron and the supply chain and other things, particularly as it relates to electricity and the needs. These are high users. When you're talking about that technology, not just the data centers and AI, but even the high-end electronics manufacturing, that takes a significant amount. We were going to be very quickly running up against a supply issue, right? As the state has been decommissioning some the state had in the past also decommissioned some of the nuclear plants. It's really interesting to me because this is a clear indication from the state that they're saying now nuclear is part of the clean energy solution. It's renewable. It's a carbon-free emission solution. They're saying this is now going to be part of whatever the next iteration of CLCPA is and how we're going to get to some of those reductions in greenhouse gas emissions and those kinds of things. I think that could also play a factor, obviously not globally, but certainly as it relates to some of the sentiment here locally, in regards to energy and people's thinking on it. Obviously, that's a long timeframe to build a new nuclear plant, the permitting, the process, getting the reactors commissioned and up and running. We're talking probably a decade before that's in operation. But the good news is I think we were looking at that pinch point coming about that timeframe out maybe a little sooner depending upon how fast things grow. Are we seeing that also that part of technology on the energy side having an influence on maybe some of the oil prices, or is that kind of unique to some regional circumstances? I think the climate discussion is becoming more realistic. I think it was a little bit too idealistic that we're going to have a hundred percent renewable and it's, it's never going to be the case. That doesn't mean wind and solar don't have a part in it, but I think it'll be really challenging to see that exceed roughly 25% of our total energy supply, at least for the foreseeable future with current technology. I think there's a maturing of the discussion where nuclear, especially if you're worried about CO2. It's CO2-free. So if that's your thing, well then nuclear should be the answer. And I think it's great that the announcement's been made. I think what's really driving it is when you look at the demand projections because of AI, because of cryptocurrency, things that electric vehicles really are just in their infancy. If, in fact, we're all going to be driving electric vehicles in 2035 or 2050. Those three things have, in magnitude, increased the potential demand for electricity. And there's just no way that renewables can do it. So I think it's more realistic. So I think it's good news that Governor Hochul made that announcement, but I share your caution. It takes a long time to build those plants. And specifically here in New York, the litigation around, and we've seen it with Micron, it just delays the game. And then you delay the game, and they say, well, the nuclear plants always come in over power. Well, if you delay the construction for five years, prices go up, and you're over budget. But we can look to countries like China, like France. France gets almost a hundred percent of its power from nuclear, and it's not a nuclear waste zone. They haven't had accent. I think the technology is much better than it was. It was with Three Mile Island. So I just think it is a very viable, from an investment officer perspective, my Chief Investment Officer hat on, I want to diversify my portfolio. Similarly, I think we're getting back to away from anything fossil fuel was evil and we had to do this, and it was absolute. That I don't think was ever realistic. And I think we're coming back to this fully diversified source of power because the demand is so great. And nuclear I think has got to be an answer. If New York can wrap their arms around it when you look at Niagara Falls and hydro, and it could prove to be a great asset for particularly the Upstate New York economy. Absolutely. It's interesting, as an economic developer, we talk about the reasons why people would want to come to New York and be part of the economy here. While there are some challenges associated with regulations or other things that they may not run into in other states, New York actually has had relatively low-cost power compared to many other states for a very long time. It's been something that's been an advantage. And candidly, we've talked about this before, a significant part of the conversation around the Micron project landing here. Good segue there for the conversation. I want to have quick round Micron. The Draft Environmental Impact Statement was released publicly. It's going to be in a 45-day comment period. It is intended to be a rigorous process of the review of the impacts of this project. Other agencies, both at the state and federal level, have been engaged in this process for months leading up to this. We're genuinely excited about the fact that this is a clear indication of progress for this project, and people are encouraged to check out the document. It's weighty. There's a lot of information in there as there should be for a large project and let their voices be heard throughout this process. It's something that for us is a necessary next step, obviously. But it really is reinforcing that this project is going to be moving forward and creating the economic impact that we have been looking for and really have seen some ancillary aspects of it. But you and I have talked about once that actually gets going with the construction workers here and the economic impact of that, it's going to be a different game for us around here. It's going to feel very different than it has for most of our lifetimes in terms of the progress and the way things are moving forward. We've talked about it before. We can talk about it again. There are ancillary impacts that are not great about that, especially if you don't do anything about it, like the housing market, right? Nationally, we're seeing housing prices come down a little bit. There isn't so much of that stress that's being taken on that. The rates have stayed up. So that churn hasn't been happening, but that's not necessarily the case here in Central New York. We're still seeing a push and a strain on that market. Yeah, I agree with you that electricity costs in New York have history, and that's basically Niagara Falls is a gift that keeps on giving. Absolutely. I think I read a million gallons pour over that fall every minute I think it was, which is really mind boggling when you think about it. But that generation is the ultimate low-cost producer and very clean, obviously. So that helps a lot. And in Upstate New York, we have a whole lot of water, which our grandfather's era wasn't that important. In today's world, where electronics is the driving factor, water is a critical factor because of the amount of cooling that has to go into a Micron plant or AI data warehouse is enormous. So water plays a key part, and we have an abundance of land available that we can develop like we are with Micron. So, I think we have a really good advantage in many respects. And again, you've mentioned some of the challenges, but I think that's, and the nuclear announcement is part of that, right? It's just another kind of addition to what makes things more attractive. So I think there's good reason to be excited about that. My guess is that we haven't seen an abundance of new building in Upstate New York surrounding Micron, but I think developers and individuals rightfully are cautious because a lot of times these big announcements fade, and they don't come to fruition. It seems to me that we're a lot closer to reality now. The environmental impact study you talked about is a big factor of it. The last time we talked was the Big Beautiful Bill going to cut out all the funding that was going to Micron. I don't want to make any, I don't want to jinx us, but it doesn't look like that's going to be jeopardized by the negotiations with the budget. So you've got a fully funded, hopefully an environmentally.... So, we're getting inching closer and closer to shovels in the ground. And I think once you get shovels in the ground with the Micron plant, I think the enthusiasm for developing, particularly in that immediate area, but all throughout Central New York, I think will jump. Housing prices are coming down largely because demand is weak, because interest rates are, well, I think that's a relative statement. I mean, the 10 Year Treasury is at 4.30%. Earlier in the year we were close to five, so it's come down, but mortgage rates haven't come down proportionally. But even then, I think historically, a 6.5% mortgage, while it is sticker shock for people who just remember two or three years ago when it was three, I get it, but a 6.5% mortgage historically is pretty reasonable. And the reality is life moves on. People pass away, houses come on the market, families grow, people have to move, people have to move in, and hopefully we'll get a big influx of people moving in. And so all of that dynamic, at some point, you can only delay your housing game so far, and at some point you got to bite the bullet and take that 6.5% mortgage, and you could always refinance it if rates drop precipitously. But I think economy-wide, and maybe this is just me being a gray-haired, old geezer, but a 4.3% 10 Year Treasury is not high interest rates. It's historically very low. And if I look over the last 50 or 60 years, the 10 Year Treasury average is closer to 6%. So the idea that, oh my God, rates are so high and they have to come down, it's like, well, when you look at the history, that's not really the case. So hopefully if we do get clarity on tariffs, and it's not the worst case scenario, that would take some inflationary pressures away, that would give the Fed a little bit easier path to cutting rates. But even when the Fed's cutting rates, the long rates don't necessarily follow. So that's where I think the inflation and the growth story is so important. Put the Fed aside, because when I'm looking at mortgage rates, I'm really looking at long-term treasury. We really use the 10 Year treasury, and historically, a mortgage is about 2% over the risk-free rate treasury. So if the 10 Year Treasury has been hovering around 4.50%, it's 4.30% something today, plus 200, that's 6.5%. That's kind of where we are. So it's not really an outlier, it's just a sticker shock where we had just extraordinary low rates coming out of COVID. That was my guess; it was a once-in-a-lifetime opportunity. Sure. Yeah, for sure. Well, I think we've got a lot to look forward to in the next couple of weeks. Certainly the clarity around the tariffs, the Big Beautiful Bill, the continued monitoring of some of those geopolitical risks and what that's going to play out. And then at the end of the day, what the Fed's going to do with that from an interest rate policy standpoint, and whether or not we're going to see massive change or continued steady growth or something in between. Yeah, I mean, the reality is the economy is hanging in there. Right? It's certainly softening, but it's not, I think the prospect of a recession is pretty small. Inflation, while it is not rapidly coming down, the fear in April was it was rapidly going up, and it's kind of hovering that 2.7% in that ballpark depending on which indices you look at. So inflation's not getting worse. My concern is that maybe the tariffs are delayed a little bit, and they could be worse, but, and let's face it, China was the big gorilla when it came to trade negotiations. Will it be nice to get a trade agreement with Vietnam, sure? But it's a fraction of what China is. And if we can get China and Europe- there's been announcements, they were calling it the revenge tax. Europe has some pretty adverse taxes, particularly on our technology companies and our oil companies. And then in the Big Beautiful Bill was what Secretary Bessel which was basically a reciprocal tariff on Europe. And there appears the G7 is agreeing to kind of take those away. So that would be further progress on tariffs. So I think the worst case scenario about tariffs, while it's still very uncertain what it ultimately will look at look like, and it will be higher than it was before. So there still will be a detrimental effect. I just think the worst-case scenario is behind us. The economy is holding its own, but if we can keep knocking down big walls of worry and fully recognizing that the Middle East can explode tomorrow. The Russia-Ukraine situation gets materially worse overnight. So we acknowledge that, but it appears that they're somewhat contained and perhaps making grudging progress so that the prospect that oil prices are going to $120 and are going to squelch the... that's going away. And whether the Fed cuts 0.25%. And right now, if I look at the probabilities of Fed cuts, the market's expectations in July are 25 percent maybe for a rate cut, it's close to 80% in September. So that's when people are going to say, okay, we're going to get through, well, we got today's PCE, so here we are in June, that was May. We'll get June and July over the course of, and then when the Fed meets in September, they'll have a lot more clarity on what the tariff situation will look like on the Big Beautiful Bill. Then they can make that assessment. They're really in a difficult spot because the economy is softening a little bit, but it's still growing somewhere around one and a half, 2%, which is trend and inflation, while it's not getting worse, is not 2% their target. So they're kind of stuck. And as Chairman Powell said this week, they're being cautious and they're going to wait and see. But I think we will certainly be getting a lot of clarity on tariffs after we come back from July 4th. The Big Beautiful Bill, something has to be done because the budget's got to be passed. Debt ceiling has to be raised. So whether it gets split up into multiple bills, who knows? I try not to predict Washington. It's a really bad game to play, but I think we're going to be getting a lot of clarity. And while I think the Fed can cut rates, I think people have expectations for three or four or five rate cuts, and mortgage rates are going back to four or 3%. I don't think that's going to happen, but we're in a pretty good spot economically with a lot of these major walls of worry diminishing by the minute. That's not a bad place to be. Sure. Absolutely. Well, it'll be fun to reconnect again in three months and see what happened and what went on over the summer and where we're trending. Ken, thank you very much again. We really appreciate it. Every time it's enjoyable and informative. Always fun. And certainly at NBT, we appreciate everything So great to be here. Thank you for having me. Thanks, Ken. Yep. Thank you for tuning in to Quarterly Market Insights, a special series part of CenterState CEO's podcast Talk CNY, presented by NBT Bank. For new episode reminders, be sure to subscribe in your favorite podcast listening app. If you're enjoying our series, consider leaving a quick review or a five-star rating.