As investors get ready for the Fed’s two-day meeting, which is expected to result in a rate increase of 75 basis points, crypto markets turned red. On Monday, the price of Ethereum and Bitcoin fell as the Federal Reserve expected to raise its benchmark interest rate by 0.75 percent, the highest increase in almost three decades.
Bitcoin fell to $21,935 per week at the time of writing. Ethereum, the second-largest crypto, lost nearly 5% to $1,528 for the day.
Cardano has the highest drop among the top ten crypto assets with almost 7%. Solana (-4.3%5%), Dogecoin (4.4%%) and XRP (3.1%5%).
According to data from CoinMarketCap, the combined market capitalization for all cryptocurrencies dropped to $1.08 trillion on Wednesday and $1 trillion by press-time.
This latest price action is ahead of the Federal Reserve meeting that begins Tuesday. It will be concluded with the U.S central bank raising interest rates another 75 basis points.
Fed officials have already increased benchmark short-term borrowing rates this year by 1.5%, including a 75-basis point increase in June — the largest such increase in nearly 30 years.
This is the Fed’s main weapon against rising inflation. The Fed will increase the interest rate, the rate banks charge each for overnight loans, to a range of 2.25% to 2.50%. It effectively ends the pandemic-era support the U.S. economy.
The federal funds rate rises can have a major impact on the economy. This includes adjustable-rate mortgages and home equity lines credit. Credit cards, student debt, savings deposits and other loans.
It is believed that less access to borrowing will reduce consumer demand and thus bring down inflation.
Surprisingly, however, U.S. inflation actually increased since March’s Fed rate hikes. The rise in gas prices, food and rent have pushed the figure to , a new four-decade high at 9.1%.
In addition to increasing interest rates on stocks and cryptocurrencies and other risky investments there are also potential risks associated with a decline of capital inflows and ultimately, a drop in economic growth.
The U.S. expected interest rate rise follows an identical move made last Thursday by the European Central Bank when the Eurozone benchmark interest rate was increased by 0.5%.