But Morgan Stanley economists believe the implications for liquidity and markets are less significant than headlines suggest.

The bank's team, led by Chief Global Economist Seth Carpenter, believes that while the end of QT signals an operational transition, it does not signal a resumption of quantitative easing (QE).

"The size of the financial liability is roughly the same, but its composition is changing," the economists stated in a report on Monday.

The Fed continues to export about $15 billion a month of mortgage-backed securities (MBS) from sovereigns while simultaneously purchasing Treasury bills to replace them—effectively "exchanging the paper with the market without adding reserve reserves," they added.

Morgan Stanley suggests that the recent increase in Fed repo operations does not equate to new liquidity injections. This increase, it is observed, reflects broker-dealers' recourse to the standing repo facility (SRF), which provides higher-market funding on demand, "a far cry from QE."

These transactions are executed overnight and reversed the next day, meaning they don't maintain reserves for the long term.

The timing of the QT end—about six months earlier than Morgan Stanley projected—is considered relatively insignificant.

The Fed's Treasury contraction is only about $5 billion per month, which, when distributed, amounts to a difference of approximately $30 billion, which economists call "very insignificant in the Fed's third-party portfolio and the market as a whole."

Going forward, the bank expects the Fed's balance sheet to expand again only in the event of a recession or market stress. Otherwise, growth will continue due to rising sentiment for cash. Typically, the report states that when banks need cash for ATMs, "the Fed dispatches an armored truck with the necessary funds, and the bank's co-account at the Fed." This process depletes reserves, and to ensure consistency, the Fed will gradually purchase Treasury bills—approximately $10-15 billion per month—not to increase reserves, but simply to prevent their further decline.

In a simpler account, the economists conclude that "the real action lies more with the Treasury." While the composition of the Fed's portfolio may change, the Treasury's issuance decisions determine how much longer the market will absorb.

The team suggests that the Fed's shift to bill purchases could support shorter-term issuance, but any easing of financial conditions "depends on the Treasury, not the Fed."