Not all interest rates are equal. The interest rate by which banks lend each other reserves for short periods of time does in no way have to correlate to other interest rates. Banks are special!
To understand banking, you have to understand maturity mismatching. Banks create liquidity/money by borrowing short term and lending long term. So if there is one billion dollars in the banking system, this allows say the banks to create 10 billion in bank deposits and loans.
To finance this, banks require base money. This they acquire from each other, deposits and from special banks called primary dealers. When the rate at which banks lend each deviates from the target Fed Funds rate, the Fed buys or sells repos to primary dealers in the hope they will buy or sell with the rest of the banking system and the target Fed Funds rate will be achieved. So say the Fed has a target Fed Funds rate of 100%. This means they will not create more money (the base money supply) while banks are lending each other loans that are under this rate. On the flip side, if the target Fed Funds rate is 0%, the Fed will be constantly creating MB and using it to buy bank assets.
Base money can be thought of as a loan with an infinitely small maturation. In reality banks operate by dealing with longer term loans that still are mismatched with even longer term assets. So if a bank creates a 3 month debt, balanced by a five year credit they are creating liquidity or money as well. The extent to which this happens is difficult to quantify but is best conceptualized by time difference between loans and assets in the aggregate. Higher interest rates, will hinder a banks ability to create liquidity (or higher monetary aggregates) which will relatively reduce the money supply.