The Federal Reserve's failure to recognize inflation as more than just a transitory issue led to a rapid interest rate hike causing significant losses for banks. The Fed should have realized the potential losses and done more to identify risks associated with its actions. The rapid rise in interest rates was beyond the career memory of almost all market participants, which should have been a warning sign for regulators. The Fed infused liquidity to keep faith in the banking system, which partly undid its own monetary tightening through interest rates.