are concerned about the drop in business investment, which is likely linked to ongoing trade war and related uncertainty. so, we continue to expect that economic activity will slow in the second half of the year. given canada ’ s reliance on international trade, we agreed that the trade war remains our primary concern and the biggest risk to our forecast. trade policy uncertainty has been weighing on business investment and exports for a couple of years now. and things could certainly get worse internationally, which would deliver a complex shock to our economy affecting both supply and demand. in this uncertain environment, central banks have been conducting monetary policy appropriate to their own circumstances and outlooks. this has contributed to lower bond market yields and reduced borrowing costs in canada. the bank of canada will continue to conduct monetary policy appropriate to our own circumstances. we will continue to ground our decisions in our policy framework, 9 see h. lao and c. steyn, “ a comprehensive evaluation of measures of core inflation for canada : an update. ” bank of canada staff discussion paper no. 2019 - 9. note that these measures do not perfectly filter any relative price shocks. for example, the auto component of the cpi is idiosyncratic and relatively volatile ; thus, one - time changes in auto prices can affect core inflation measures. it has a larger effect on cpi - median and cpi - trim than on cpi - common. - 7setting interest rates to achieve our inflation target, mindful of the implications for financial vulnerabilities. our current policy setting of 1. 75 percent, which is 50 basis points below the us policy rate, continues to support the economy. to sum up, as i said earlier, canada ’ s economy is operating close to potential and inflation is on target. however, escalating trade conflicts and related uncertainty are taking a toll on the global and canadian economies. in this context, the current degree of monetary policy stimulus remains appropriate. as the bank works to update its projection in light of incoming data, governing council will pay particular attention to global developments and their impact on the outlook for canadian growth and inflation. i hope i have been able to shed some light on the bank ’ s rate - setting process. i thank you for your attention and look forward to answering your questions.

banks have taken measures to stimulate their economies. bond yields are lower, and the yield curve is inverted in many countries. an inverted yield curve means that short - term interest rates are higher than long - term rates. this is the opposite of how the yield curve normally looks because longer - term lending is usually considered riskier. historically, an inverted yield curve has been viewed as a sign of a future recession, especially in the united states. today, with interest rates so low to begin with, an inverted curve is more likely a sign that investors foresee weaker long - term growth. the canadian economy in contrast to the global economy, canadian economic data since july have surprised on the upside. last week, we received the national accounts report for the second quarter. it showed the economy grew at a pace of 3. 7 percent, much stronger than we had forecast. among the highlights from the report was labour income, which grew by 7 percent, reflecting continuing growth in employment and hours worked and a notable pickup in wages. that rise in income, along with the lower interest rates i mentioned earlier, helped support unexpected strength in housing. in fact, most people renewing a five - year fixed - rate mortgage today are paying a lower interest rate than they did five years ago. housing is once again contributing to growth, with resales and starts catching up to underlying demand. high levels of household debt remain the main risk to canadian financial stability, but with tighter mortgage rules in place, the quality of the stock of household debt should continue to improve. however, consumption was surprisingly soft in the quarter, particularly given the increase in labour income. and the national accounts data suggest that some of the economy ’ s strength will be temporary. exports were very strong, but much of that came from a sharp rebound in shipments of crude oil and transportation equipment. imports were surprisingly weak, and companies are still carrying high levels of inventories. business investment contracted sharply after a strong first quarter, likely reflecting, in part, the impact of the escalating trade war. the stronger second - quarter growth means that the economy was operating close to its productive capacity, or potential — a concept i will explain in a minute. and inflation has been very close to our 2 percent target. inflation and the phillips curve now, let me spend a few minutes on the relationship between inflation and economic growth. this issue has been in the news lately because inflation rates in the united states, the euro area and japan have stayed low, even