U.S. Bancorp CEO: Businesses Will Take Action The Minute The Fed Raises Rates

The Fed is likely to start raising rates around September this year, which will have a significant impact on the financial decisions taken by households and businesses.

U.S. Bancorp USB CEO Richard Davis was on CNBC Tuesday to discuss how consumers and businesses will react to rising interest rates.

The Tsunami Effect

"We take the prevailing interest rate scenarios that a lot of the economists take and we thought the Fed would start moving up in June, then September, then December," Davis began. "And now we are more of the prevailing view that it’s September, maybe not another one until next year.

"So, that just adjusts our thinking a little bit further back and causes us to wait a little bit longer for customers to take advantage of what I think will be, I call it a Tsunami effect – when rates start to actually move, because they will be excited to take action when they need to."

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The Minute Rates Are Raised

On how the commercial loans will be impacted once rates start to move up, Davis said, "So there’s two thoughts about it. I say Tsunami on purpose, because once the water comes over, it doesn’t recede right away. So, this is not like cash for clunkers where all of a sudden we just move things forward.

"There are a number of CFOs around this country that for seven years have not walked down the hall to the CEO and said, ‘Hey, rates are about to move – either direction. We don’t know. They are not telegraphed. Let’s get on with it.’

"In this case, none of that is happening because it’s quite well telegraphed – not exactly what it will be, but that it’s not now.

"And as long as a business knows it’s not now, they have no cost of waiting. There’s no risk in value of time. So, they are withholding some of the decisions that I am quite certain they will take the minute rates start to move up, almost no matter how much," Davis concluded.