Fiat currencies are inflationary by design, so that people don't hoard currency. The more your money loses value every year, the less likely you are to keep it sitting in a bank. This availability of money in the market encourages the growth of the economy. When money is easy to borrow, entrepreneurs and businesses can use it to hire/build/invest, and pull forward developments that would otherwise have taken much longer.
This comes with the drawback that an increase of availability of money in the market causes an increase in prices and risky behavior, which as we know from history, can be very bad.
The US government tries to keep the inflationary nature of fiat currencies in check by regulating the interest rate from the root source of all money, the federal reserve bank. You can think of them as an infinite source of money which can be borrowed at a cost: the interest rate. When they increase interest rate, it increases the cost of tapping into that money, which slows down borrowing, hiring, investing, etc. If done too severely, it can result in a deflationary spiral.
As for why bitcoin was designed to have a fixed supply, I do not know. However, I can speculate two reasons. The first reason I can think of is simplicity. Since bitcoin is designed to be decentralized, it's not obvious who would play the role of the federal reserve. So, maybe Satoshi shrugged and said, let's just keep the supply fixed to start. The second reason is to give early adopters an incentive to start mining, akin to mining gold (Satoshi makes this analogy himself in his original paper).
What's interesting to consider is what if you made a cryptocurrency whose supply wasn't fixed, but rather expanded and contracted like fiat currencies. This was proposed in this paper, which is quite well-written, whether or not you agree with it. I am not an expert so I'll keep my opinion out of this post.