NEW YORK (CNN/Money) - One of the things researchers at the Federal Reserve have been trying to figure out lately is how central banks might better convey ideas on monetary policy to investors.

Talk about a worthwhile topic for study. It's hard to think of a time when Fed policymakers have sown more confusion, or have roiled markets as much as they have over the past year. Unfortunately, Wednesday's speech from Fed Governor Ben Bernanke -- the Fed official the market has come to follow almost as closely as Chairman Alan Greenspan -- did nothing to clear the air.

"They've given all this extremely confusing talk about unconventional methods over the past few months," said Credit Suisse First Boston bond strategist Mike Cloherty. "There's substantial work to be done on the whole communication issue over there."

The whole mess began Nov. 21, when Bernanke gave a speech -- "Deflation: Making sure 'it' doesn't happen here" -- before the National Economists Club in Washington. In it, Bernanke pointed out that, should the Fed's usual method of goosing the economy -- cutting the funds rate -- fail to get the juices flowing, it had other means at its disposal. It could print money, it could offer zero-interest loans to banks through its discount window, it could even buy Treasurys.

For bond investors, this was a bigtime event -- a declaration by the Fed that the war on inflation begun by former Fed Chairman Paul Volcker back in 1979 was over and that a new war, against the potential for deflation, had begun. To fight this new war, the Fed would do anything it could to keep long-term interest rates down. It meant that even though the yield on the 10-year Treasury, at 4.08 percent, was incredibly low, you could buy Treasurys with abandon.

Which, as it sank in, is exactly what investors did, driving the 10-year's yield below 4 percent. At first, people ascribed the move to worries over Iraq, saying it would all get reversed once everything got cleared up. Much to their amazement, even after President Bush declared major hostilities in Iraq were over, and even as stocks rampaged higher, Treasurys kept rallying.

Then came the icing on the cake -- the statement the Fed made following its May 6 policy meeting where it warned that "the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level." For market participants that was a signal that the Fed had indeed taken up arms in a new war.

Some thought the statement also implied that the Fed had some specific level of inflation it would like to see attained. An inflation target, in other words -- an idea long espoused by (you guessed it) Ben Bernanke.

Bernanke was beating the drum, the rest of the Fed was dancing, and interest rates swept lower. The economic effect was immediate: Mortgage initiation and refinancing activity heated up, boosting the housing market and putting money into consumers' pockets. Corporations were able raise cash in the bond market at rates that would have been unthinkable a year earlier.

On June 13 the 10-year's yield fell to a 45-year low of 3.11 percent. The next trading day it turned and headed higher. And the Fed didn't do a damn thing to stop it.

If anything, the Fed abetted the reversal. First, it sent mixed messages to the market about its intentions heading into its late-June meeting, leading many participants to believe that it would cut the overnight fed funds rate by a half point. As a result its quarter-point cut was a disappointment.

Then, in his semiannual report on monetary policy to Congress last week, Greenspan said that although the Fed had looked into unconventional methods of stimulating the economy, "situations requiring special policy actions are most unlikely to arise." Treasurys sold off sharply, provoking Greenspan to say the next day that he hadn't taken anything "off the table."

But the damage was done. The 10-year yield is now 4.1 percent -- above where it was when Bernanke made his famous speech last fall. The rise and fall of the Treasury market this year has been one of its most violent moves in history. Many investors are badly burned.

"The perception was allowed to develop that a drop in inflation was not just a huge concern," said Brown Brothers Harriman fixed income portfolio manager Richard Koss. "Was that intentional or not? Is it a concern again now? And will this be a consistent story?"

The message from Bernanke Wednesday appeared to be that, yes, a drop in inflation is still very much a concern and that the Fed continues to consider using unconventional methods to counter it. He went as far as to say that an inflation rate (using the core of the personal consumption expenditure price index) of between 0.5 percent and 1 percent was unacceptable and then lay out a forecast that put that rate at 0.7 percent at the end of next year.

He again suggested unconventional ways the Fed could stimulate the economy, and even suggested one -- selling options to banks that would allow them to borrow at low rates in the future -- that he hadn't brought up before. Finally, he suggested that the Fed needs to come up with a method that will concretely tell the market how very long it will be before the central bank raises interest rates again.

The speech had almost no effect on the market. Treasury yields were little changed at the end of the day.

"The speech doesn't appear to have garnered any attention at all," said Morgan Stanley economist Bill Sullivan. "His comments really weren't the focus."

Or maybe it's not so much that bond market investors weren't focused on the speech as that recent experience has taught them that trading based on what the Fed says is a bad idea. Which is bad news for the Fed, because now if it wants to get long-term rates to stay low, it's going to actually have to do something besides work its jawbone.

"It's going to be much harder for the Fed to talk rates down after what's gone on lately," said Cloherty. "At this stage it's really going to require action rather than talk."