How the Fed Increases the Money Supply
The Fed could initiate open market operations (OMO), where it buys or sells Treasuries to inject or absorb money. It can use repurchase agreements for temporary expansions. It can use the discount window for short-term loans to banks.
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By far, the most common method of adding money is through an increase in bank reserves. So, if the Fed wants to inject $1 billion into the economy, it can simply buy $1 billion worth of Treasury bonds in the market and deposit $1 billion of new money into the reserves of banks.
Yar! Now the money is in the banks. How does it get into circulation? Loans.
The money doesn't get into the economy without a commercial bank giving the green light.