One of the best ways to figure out what the Fed is going to do next is to look at regional bank stocks.

Markets have again changed their minds about what the Federal Reserve will do next week on interest rates.

In a morning of more banking turmoil and Wall Street stocks opening sharply lower, traders priced in a sign that the Fed would likely remain on hold at its March 21-22 meeting.

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Chances of no rate hike are said to be as high as 65% CME Data Wednesday morning. However, trading was volatile, with the latest moves pointing to a nearly 50-50 split between no hike and a quarter-point hike. For most of Tuesday, the market indicated that a rise was likely.

chairman Jerome Powell He and his fellow Fed policymakers will address the rate hike by watching the continued influx of macroeconomic reports, as well as data from regional banks and their share prices, which could provide more clues about the health of the financial sector.

Small banks have come under intense pressure in recent days following the collapse of Silicon Valley Bank and Signature Bank, the second and third largest bank failures in U.S. history. The SPDR Regional Bank ETF lost another 1.5 percent on Wednesday, having lost more than 23 percent over the past five sessions.

In a dramatic move on Sunday night, the central bank launched an initiative It’s called the Bank’s Term Funding Scheme. This will provide a facility for banks to exchange loans for high-quality collateral, thereby securing their operations.

The flow of money into affected banks can be reflected in their stock prices to indicate how effective the Fed’s actions are in maintaining confidence in the industry and keeping money flowing.

Fed officials will also get data in the coming days on how aggressively banks are using the tool.

If banks use BTFP to a large extent, it could indicate a major liquidity problem, preventing a rate hike. The last public report on the data is due on Thursday, though the Fed will be able to monitor the program until a two-day meeting begins on Tuesday.

After a tumultuous morning on Wall Street, where does the Fed end up headed?stock was Sharply lower in early tradeand Dow Jones Industrial Average down more than 500 points.

The news comes just as concerns about the health of the banking sector start to abate Credit Suisse may need a lifelineShares in Switzerland’s second-largest bank tumbled after a major investor in Saudi Arabia said it would not provide more funding due to regulatory concerns.

The recession came even as economic data appeared to ease the urgency of controlling inflation.

this Producer Price IndexAn indicator of wholesale pipe prices unexpectedly fell 0.1% in February, according to the Labor Department. While markets typically pay little attention to PPI, the Fed considers it a leading indicator of inflationary pressures.

On an annualized basis, PPI growth fell to 4.6%, down sharply from January’s 5.7%, which itself was revised downward. PPI peaked at 11.6% in March 2022; February reading was the lowest since March 2021. Excluding food and energy, core PPI was flat on month and up 4.4% yoy, down from 5% in January.

“There is a good chance that the core PPI will continue to be rapidly disinflationary, which is at the heart of our relatively optimistic view of the core [personal consumption expenditures] “Inflation, ultimately, is Fed policy,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Markets don’t pay much attention to PPI, but the Fed does.”

The PPI data was joined by Tuesday’s relatively benign consumer price index report. Markets last week priced in a possible half-basis-point rate hike this month, but quickly backed off.