Brent Donnelly on the Fed, Inflation, and Why 2% No Longer Matters

In this episode of Excess Returns, we sit down with Brent Donnelly, veteran trader, author, and president of Spectra Markets, to dive deep into macro markets, trading philosophy, the role of the Fed, and how AI is changing the way traders operate. Brent shares insights from his decades in FX and macro trading, his flexible approach to positioning, and the lessons he’s learned about risk management, narratives, and humility in markets.

Topics Covered:

• Why the Fed is becoming more political and what that means for markets

• The “re-acceleration that wasn’t” and lessons from quickly abandoning trades

• How to structure trades like gold calls and TLT puts for asymmetric payoff

• FX as the “exhaust valve” for tariffs and global capital flows

• Canada’s housing bubble and CAD vulnerabilities

• Inflation targeting, bond vigilantes, and the Fed’s credibility

• Avoiding the trap of perma-bearishness and using stop-losses as forced humility

• The importance of imagination in regime changes and Fed forecast errors

• How Brent is using LLMs and AI to trade headlines, structure trades, and analyze patterns

• Trading bubble names with options and risk-aware structures

• Lessons on flexibility, humility, and embracing uncertainty in markets

Timestamps:
00:00 – Fed independence and political pressure
02:00 – The failed “re-acceleration” thesis
06:00 – Structuring gold calls and TLT puts
14:00 – FX as the exhaust valve for tariffs
20:50 – Canada’s housing market and CAD risks
26:30 – The Fed as a political institution
32:40 – Inflation targeting and 3% as the new 2%
35:20 – Avoiding perma-bear bias and using stop-losses
42:00 – The Fed dinner story and the humility of wrong forecasts
46:30 – Using LLMs and AI in trading
53:00 – Shorting bubble names with call spreads
56:00 – Cheat sheets and pattern recognition with AI
59:30 – Lessons on flexibility and humility in trading
1:02:15 – Closing thoughts and where to follow Brent