Underlying economic forces are strong, and economic activity continues to accelerate. Production has picked up since last spring but has lagged the growth in demand. In addition to pressure from excess demand, rising costs of production have contributed to rapidly rising prices. Monetary policy, which had been very stimulative in 1967, moved toward restraint early this year. However, fiscal actions have continued to be expansionary, and the prospect of larger than anticipated increases in defense spending threatens the economy with additional inflationary pressure.