Leading central banks and financial markets appear to have increasingly adversarial relationships at present, in which these parties have difficulty in understanding each other’s motivations.

This again came to mind while reading “BOE’s Quest for Guidance” (WSJ 26 September), the umpteenth such article on a very complex subject, in academia and in popular media, yet central now to our collective fortunes, for on it ride our equities, bonds and Rand, and beyond that inflation, interest rates and growth.

This concerns most directly the Fed, ECB, BoE and BoJ but especially the Fed as main central banker giving the lead on where unconventional policy measures head next. In that distant capacity they fundamentally affect our own national fortune.

Given the extraordinary circumstances that gave rise to the two great Western financial crises of the past decade, the deep economic scars left by them, the listless recovery and the ever present danger for the West (and the Rest) to seriously relapse and descent into another major Depression, there was a need for extraordinary courage.

Or so the lead central bankers thought, and a few heads of state, at least for a while, until called to account.

Which in the end left only the central bankers to carry on by themselves.

First, they did the easy things, cutting interest rates to or near zero. Then they started buying bonds or providing cheap long run finance to banks, thus expanding their balance sheets in order to keep long rates down and markets functional.

Throughout this effort they refined their musing out loud, on the principle that if global financial markets could overhear them, they might act on such insight, and do so in ways that mostly reinforced and amplified policy intent.

This communication strategy became known as guidance. As the guidance became more unprecedented (does one dare call it extreme, at least by past benchmarks?) it was always possible for the parties involved to miss each other in translation.

The Fed became increasingly determined in recent years to convey to markets that their heavy lifting would be necessary for a very looooong time in keeping long bond yields very low indeed for the US economy (and others) to adequately recover. Markets became addicted to this promise across a wide spectrum of assets but naturally also retained a strong measure of skepticism.

For when it became time for the Fed to start turning, exiting this extreme policy phase, it might well find it would get both its timing and pacing wrong. A careful investor would always aim to second-guess where needed and remain ahead of the curve.

As the Fed started arguing in public this year that it might at some point have to start dialing back its generous policy stance, the first thing markets did was to overreact, wanting to do in six months what the Fed was aiming to do in six years.

When nearly simultaneously Congress and US government again turned seriously adversarial through partial government shutdown and debt ceiling showdown, the fat was in the fire.

Though recovering, the US economy is hardly firing on all pistons and in no danger of accelerating quickly, yet having to absorb the two headwinds of overreacting markets and over-the-top politicians in terms of public shutdowns and debt showdowns, and this serially stretching to the distant horizon.

A third headwind was the negative feedback loop of potentially stalling EM markets, mentioned in the Fed meeting minutes but kind of forgotten in the public discourse hurly-burl. The Fed after all does care what’s going on elsewhere, especially when it threatens to boomerang back on its own designs.

These complex realities led the Fed in September to do an about-turn in policy direction without signaling this in any way ahead of time to markets (an as yet unexplained misstep when going by expressed communication intentions, possibly partly due to the fraught Bernanke Succession battles).

The outcome of this miscommunication was seriously destabilizing. By then mostly everybody thought they understood the situation and Fed strategy, had lapped up the Fed guidance, were ready to make another pile out of bond tapering, and suddenly found themselves offside.

What happened to guidance? Sorry, there cannot ever be real certainty. Get over it. We remain data-dependent and accidents happen.

Yes, but wait a moment. That’s not guidance. That is just good old-fashioned guessing, by the Fed, and by markets trying to outthink the Fed.

Sounds like back to square one. Yet things were to become a good deal more complicated.

For the US and world recovery have yet to acquire real legs, for the many idled resources to be reabsorbed and for stability to become thoroughly re-established.

That will take time, many years, according to policy makers everywhere, and will be the real challenge facing the Yellen Fed.

Markets have a different take on this. There is the early inflation crowd, the early growth revival crowd, the crowd who believes the Fed always gets it wrong (late). Add them all up, and markets are early movers.

Given, however, the extent to which central bank balance sheets have been expanded ($10tril and still counting steadily), the way long bond yields have been repressed and risky assets boosted, an awful lot of money is very poorly positioned for a return of normality in bonds, equities and currencies.

If that lot has to move fast, it will sink much.

If it has to happen quickly because reality has changed, that would be bad. But if reality turns out different?

This is the crux of much of what is playing here.

Most market players are convinced of at least one thing. Key central banks will eventually have to exit unconventional policies as emergencies end.

Where not everyone is seeing straight or hearing correctly is the pace at which this needs to happen. A further aspect is actual timing.

On past performance, markets fear early and quick.

But that could be a function of learning and preparing for the last war, instead of appreciating that something is not quite the same today, falling very much outside the experience frame of many.

After big global financial crises, history teaches only very slow recuperation. If simultaneously political factions inside crucial regions (US, Europe) are at loggerheads, making poor policy decisions or simply requiring much time, the resulting uncertainty further weighs on confidence and recovery.

The Fed sees evidence of normal US recovery, yet such recovery is slow, keeps the labour market unbalanced, inflation suppressed, with deep hints of being a drawnout recuperation, partly because bond yields wanted to back up too fast and fiscal and debt policy was being politically mismanaged, to which one has to add any spillover effects from overseas.

Market players have a way of seeing such policy procrastination at the Fed as dilly-dallying, yet it isn’t. Instead, there is genuine Fed data dependence and careful pacing going on.

The challenge for the Yellen Fed (and Draghi ECB and Carney BoE) is to communicate this in word, but also in deed.

This may at times lead to countervailing pressure being offered when markets overreact, of which the September manifestation was only a partial one (as much else apparently wasn’t at first quite working out, including clarity on the Bernanke Succession).

Going forward then, the Yellen Fed may have to do three things simultaneously. Give markets forward guidance so they may position and thereby do heavy lifting. Actually take policy action, whether bond purchase tapering and eventually raising rates (or even give MORE policy support if the US economy suffers too much under these serial political onslaughts).

And thirdly act as counterbalance to the markets’ shot put attempt or what the human spine is to the golf swing.

That third role will be the interesting one.

Within the Fed’s forward guidance and actual policy action there has to be scope for countervailing thrust in case markets overreact or don’t get it.

If markets therefore are waiting for a start gun and then wish to stampede in their repositioning, hopelessly overreacting, the Yellen Fed may have to decide to counter such reactions.

Easier said than done.

Still, in an extremely slow and long-drawn out revival as stressed by Fed, ECB, BoE, IMF and even many private observers, there is no place for an instant lifting of the US yield curve.

If private institutions don’t have the confidence, belief, trust, savvy to buy the obvious main message (this will be slow and long, unlike anything else you have encountered in your lifetime), they will need to be countered in their eagerness to adjust fast.

That may mean more warnings about slow (as bond markets in any case may be going too fast), smaller policy adjustments when imposed (because bond markets may discount bigger moves), more time lapse (because bond markets will fear Speedy Gonsales time tables).

As time goes by, markets may learn from the experience and adjust their own response time to the observed central bank reaction function.

This learning curve could turn out to be a robust one, as the past six months have shown, with much unwanted volatility. Yet the observed change in central bank behaviour will likely become reflected and embedded in market responses.

The more the markets observe about this Great Exit, the more they will learn.

It is true that the Yellen Fed faces big challenges in getting this policy mix just right in traversing the Great Exit these next FIVE years.

It is markets that may face the bigger challenge in believing everything they see and hear, and acting in line with official guidance, even when questioning and testing this every step of the way.

It is old advice never to bet against the Fed for too long, for one is bound to come to regret it.