The other, less talked about way that the fed can increase money supply is through "open market activities." Specifically, the buying and selling of US treasury notes (T-Bills). If the fed wants to increase money supply, they will purchase treasury notes on the open market, this takes T-bills out of the open market and directly injects cash. When it wishes to reduce money supply, it purchases T-bills taking cash out of the market and puting it back into reserves.

Interest rates are either directly effected by the actions of the fed (reducing the fed funds rate) or indirectly effected by, again, basic supply and demand. In the latter case, direct injections of money into the economy via open market activities increases the supply of cash, and can lower interest rates if supply outpaces demand. Interest rates are, after all, nothing more than the "price of money," and if everybody has it to lend, it's worth less.

With respect to deflation, while external factors such as that noted in the initial response to your question could have deflationary effects on specific commodities, as a macroeconomic concern deflation generally occurs in the form of a lowering of general prices (The CPI) as a response to reduced demand. If retailers cannot market their goods at current market prices, they will reduce those prices as an incentive to induce sales (Like when your local Best Buy marks everything down 50% for a "going out of business" sale). This causes competitors to reduce prices and so on and so on, until prices on a macro level begin to show declines. The bigger concern is that negative price preasures will flow back up the value chain and eventually lead to reduced production, job loss, and a self feeding cycle.

As my title indicates, I'm no expert, but that's my understanding of it all.