Firstly, there is the problem of herd behaviour, which may or may not be rational, in speculative financial markets. This results in overreactions to stimuli whereas monetary policy makers need to proceed with caution and prudence. Secondly, speculative bubbles are a fact of life.
As Blinder graphically puts it, ‘central bankers must steadfastly resist such whimsy and inoculate themselves against the faddish behaviour that so often dominates markets. That may be why central bankers are not much fun at parties’. Finally, he argues that market traders tend to have much shorter time horizons than central bankers.