(The opinions expressed here are those of the author, a columnist for Reuters.)

LONDON - Deciphering the Federal Reserve's money market system usually gives a headache to anyone outside of that world. But a possible end this week to the Fed's "quantitative tightening" policy may offer a boon to government and shouldn't be disregarded as mere financial wonkery. 

Another quarter-point cut in the Fed's main policy interest rate seems baked in for this week, so much so that attention is drifting to what might happen with its balance sheet management. Most market watchers assumed quantitative tightening - letting bonds roll off the Fed's balance sheet - would continue through early 2026. But Fed Chair Jerome Powell recently flagged a likely end to the whole QT process in the "coming months" after a wave of heavy government bill sales triggered a hiccup in the money market system.

Powell's comments were taken as a signal that the QT process could end as soon as this year, possibly even this week.

For everyone outside of the esoteric world of financial plumbing, the big question is whether any of this really matters at all.

For one, the end of QT may help facilitate the government's current funding strategy that has been in place since mid-year and has seen Treasury rely more heavily on short-maturity bills of 12 months or less. The share of Treasury bills in the ever-expanding U.S. debt stack is set to jump above historical averages and hit 25% by year-end.

An imminent end to QT may smooth this process by allowing the "steady state" of the Fed's balance sheet to tilt more toward bills over time, leaving the Fed and Treasury curiously well-aligned.

WATCHING PAINT DRY

On one level, the process of trimming the Fed's enormous balance sheet - which hit more than $9 trillion at its peak - is happening remarkably smoothly. The unwinding of pandemic-era bond purchases and the related excess liquidity has mostly been like "watching paint dry", just as the Treasury intended.

Indeed, the end of this round of QT - only the second ever - could well be momentous. That's because it could drop the curtain on the use of the Fed's balance sheet to conduct monetary policy, as opposed to regulating reserves or emergency rescues.

And as banks have increasingly come to access funds at short notice via the Fed's new special repo facilities, there's an alternative system taking shape.

This suggests the stigma related to borrowing through these facilities has diminished as planned. In fact, far from being a sign of stress, the recent money market hiccup may just be a glimpse of how the system should be working.

Whether that encourages the Fed to pull the plug this week on its now relatively modest monthly QT tally is considered an academic point for many experts. Most agree that it makes little practical difference whether the central bank ends it this week or in December.

But to the extent that the money market discomfort that sparked Powell's comment was largely caused by Treasury's heavy bill sales - about $800 billion of net new sales so far since July's debt ceiling was lifted and set to top $1 trillion this year - the end of QT could be an interesting moment.

It will hasten the debate on makeup of the Fed's sustainable balance sheet going forward. While the current size is almost $2.5 trillion below pandemic peaks, the balance sheet still totals more than $6.5 trillion.

Fed Governor Christopher Waller, who is tipped by some to be the next Fed chair, thinks the central bank's holdings have been skewed too heavily toward longer-dated bonds due to the central bank's bond-buying stimulus efforts since the 2007-2008 global financial crisis. He's argued that it would be better to shift Fed holdings more toward bills over time.

Speaking in July, Waller said the skew toward long-dated debt had slowed the process of QT and the Fed may therefore seek to re-weight its holdings toward shorter-term securities the next time it seeks to increase bank reserves.

As it stands, bills are only just over 16% of the Fed's balance sheet, whereas Treasuries of 10-year maturities or more make up 38% and one-to-five-year tenors account for 34%.

If the Fed halts QT now, how likely is the Fed to be buying Treasuries again in future?

Possibly within the year for reserve management purposes, reckon Barclays analysts, adding this was just one of an array of tools the Fed could use going forward.

So Treasury is relying more heavily on short-term funding and the Fed is possibly planning to skew its balance sheet more toward bills over time. Does this mean there's a happy coincidence afoot?

In previous eras where central bank independence wasn't publicly questioned, that may have been the assumption. But at a time when many fear the political capture of the Fed, the "coincidence" may need to be monitored more closely than usual.

The opinions expressed here are those of the author, a columnist for Reuters

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(by Mike Dolan; Editing by Jamie Freed)