What is the Fed's monetary policy instrument? What is a monetary policy instrument? Question content area bottom Part 1 The Fed's monetary policy instrument is the _______. A monetary policy instrument is _______. A. federal funds rate; a variable that the Fed can directly control or closely target B. inflation rate; a variable that the Fed can influence but not directly control C. inflation rate; a variable that the Fed can directly control or closely target D. monetary base; a variable that the Fed can directly control or closely target E. federal funds rate; a variable that the Fed can influence but not directly control