Mobile phone costs in the United States may prevent the Federal Reserve raising interest rates again this year.

It sounds crazy but the chart below from Westpac will make for an interesting debate.

It shows the annual change in core consumer price inflation (CPI) overlaid against core CPI excluding mobile phone services.

If not for a steep decline in mobile phone costs, core inflation would currently sit above 2%, the level targeted by the US Federal Reserve.

Instead, it stands at 1.7%, seeing market expectations for another rate hike this year fall to below 50%.

While markets aren’t convinced that the Fed will go again this year, Westpac’s senior currency strategists Sean Callow thinks it will, something he says will act to support the US dollar.

“The debate will continue, but if the Fed mood at Jackson Hole is in line with our baseline view of announcing the start of balance sheet reduction next month and then hiking in December, the USD should firm against major currencies,” he says.

We’ll get further clarification on the Fed’s mood with chair Janet Yellen scheduled to speak at midnight tonight AEST.

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