I'm a layman trying to understand how the US monetary system works. I'm particularly interested in how the Federal Reserve can create inflation without printing new dollars and putting them in M1. My problem is that I don't get how the Federal Reserve can create inflation through lowering interest rates.
It's pretty intuitive on paper: when interest rates are lower people tend to demand more credit. Borrowing increases the M1 money supply. So we get inflation. I don't have trouble understanding that.
It's the other side of the trade that I don't understand. Why would a bank lend money at very low interest rates if that would create enough inflation that they'd be losing purchasing power? Maybe they do more than lending and it fits into a bigger picture that does make sense. But I can't find a good explanation of this.
Is there anyone that could explain/clarify this to me? I'm not an economist and the answers I find online are rather vague and complex for people like me in my opinion.
Thank you very much in advance, Joshua