How exactly do Fed interest rates affect inflation?

[Lord of the Large Pants]

I am not a clever man, and I don't think I fully understand this. As I understand it, the Fed is looking pretty hard at raising interest rates to reduce inflation. How does that work? And furthermore, I've also read that the Fed raising interest rates could cause a depression. How does that also work? What counts as a depression in this context? Because it seems like if nobody can afford anything, even if that's not TECHNICALLY a depression by some arcane definition, it still seems pretty bad.

Please explain.

 

[BelUwUga]

Alright let me try and explain it most simply: You understand how supply works right? I.E. Supply goes down, price goes up if demand is the same. On the other hand with inflation there is an oversupply of money and because of that it's value is decreasing. The easiest way to picture the Fed rate is that it's bank's cost of borrowing money to lend out to others at a higher rate. Making it more expensive means banks will borrow less, and in turn lend less out to their customers. This overall decrease in supply should raise the price/value in theory.

Complication: You can't clever-math your way out of economic reality. While this would decrease inflation, it also really hampers growth in the economy. This could potentially have severe knock-on effects if it was pushed too far.