In economics, Stein’s Law says that, “If something cannot go on forever, it will stop.” It is unlikely that US economist Herbert Stein had pandemic-related monetary policy responses in mind when he coined that phrase, but the maxim still applies. Across the world, monetary policy is moving towards post-pandemic settings. Markets need to start factoring this in and adjust strategies accordingly. However cautious their approach to the task, there are growing signs that central banks and governments are now considering whether policy measures adopted to lessen the economic impact of the pandemic have outlived their usefulness. As those policy moves are gradually reined in, the wave of accompanying liquidity that the measures have provided to asset markets will recede. As that tide goes out, we will discover, in the words of Berkshire Hathaway’s Warren Buffett, “who has been swimming naked”. Those who are skinny-dipping should put on bathing costumes, if they can, before the tide goes out. Policy normalisation in China has already begun. In March, Beijing made deleveraging one of “five major tasks” to be addressed this year after stimulus efforts to combat the economic impact of the pandemic pushed debt levels to record highs. Beijing has taken this stance even though the People’s Bank of China had adopted a more nuanced policy approach to the pandemic than other major central banks. “The central bank’s balance sheet has not been greatly expanded to ‘print money’,” Sun Guofeng, head of the PBOC’s monetary policy department, wrote in a contribution to a new Centre for Economic Policy Research e-book published last week. “In 2020, the balance sheet of the [PBOC] expanded by only about 3 per cent, while those of the Federal Reserve , the European Central Bank and the Bank of Japan expanded by 77 per cent, 50 per cent and 24 per cent.” In the United States, given the scale of job losses caused by the pandemic, Fed chief Jerome Powell has stuck to the mantra that it is not even time to start thinking about thinking about tightening US monetary policy. Why the US is living on borrowed time with near-zero interest rates Yet last week, Philadelphia Fed president Patrick Harker said that “it may be time to at least think about thinking about tapering our US$120 billion in monthly Treasury bond and mortgage-backed securities purchases”. Harker’s choice of words was deliberate, but he also said the US central bank would remove accommodation “carefully and methodically” as the economy continues to strengthen but that the “goal here is to be boring”. The Fed likes to be boring, knowing that sudden changes to US monetary policy can disrupt markets globally. Harker’s comments should be seen in that light and not just simply dismissed. Last week’s decision by the Fed to wind down the Secondary Market Corporate Credit Facility (SMCCF) that was established as an emergency lending facility to calm credit markets at the height of the pandemic should be seen in the same light. Gradually selling down its SMCCF holdings of corporate bonds and exchange-traded funds invested in corporate bonds might not be a tightening of US monetary policy in the formal sense, but it is a necessary step in preparing markets for the prospect of future action. That action is likely to commence with a tapering of that current US$120 billion Fed monthly asset purchase commitment. Perhaps markets should start to seriously consider the possibility that the Fed is preparing the ground for a taper announcement at the Jackson Hole Economic Symposium in late August, hosted by the Kansas City Fed – if not earlier. Significant monetary policy changes have been announced there on previous occasions. But if the Fed has to tread lightly for fear of frightening the markets , other central banks such as China’s can and are being less reticent about the need to move beyond pandemic-derived policy settings. For example, policy normalisation is already on the agenda in South Korea. “Going forward, I can’t be precise about the timing, but adjusting monetary policy in an orderly manner would be an important task as [the] macroeconomic environment and financial stability conditions change,” Bank of Korea governor Lee Ju-yeol said on May 27. Elsewhere, the Bank of Canada recently trimmed its pandemic-related asset purchase programme while the Reserve Bank of New Zealand is now hinting at a possible interest rate rise next year. Change is coming to global monetary policy settings and markets need to factor this in. After all, if something cannot go on forever, it will stop. Neal Kimberley is a commentator on macroeconomics and financial markets