The Fed can not offset the effects of tariffs on China and Mexico: the experts

A federal Dovish reserve may use tools such as rate cuts to mitigate the damage caused by US tariff skirmishes with China and Mexico, but its effectiveness or its motivations are limited, said two economists on Thursday at CNBC.

Instead, the US needs to resolve these issues at the negotiating table, Nathan Sheets, Chief Economist of PGIM Fixed Income, Chief Investment Officer at CNBC's Spring IIR meeting in Tokyo, told CNBC. .

"The Fed can mitigate some of the adverse effects, but I'm not sure that it is inclined to act fast enough or enough to fully offset the effects of this trade war.I think ultimately the solution or the resolution of this problem must be found at the negotiating table between President (Donald) Trump and President Xi (Jinping), and between the United States and Mexico, "he said.

"The Fed will do its best given the current economic situation, but it would require a dramatic easing of monetary policy so that these effects are fully offset," said Sheets.

US Federal Reserve Chairman Jerome Powell said on Tuesday that the central bank was willing to relax its monetary policy to support the economy, while it was expected more and more a reduction in Fed rates several times this year.

He added that the central bank was closely monitoring the economic developments and would do everything in its power to maintain record-breaking expansion.

Also addressing CNBC at the spring meeting of the IIF members, Robin Brooks, chief economist at the Institute of International Finance, added: "There are warning signs … we are worried about (emerging markets) All these geopolitical measures, tariffs and sanctions, commercial risks are really damaging for emerging markets, and a dovish Fed is not enough to compensate them. "

Markets were frightened by trade tensions that spread to Mexico last week when Trump announced that the United States would impose tariffs on Mexican products. Additional fees will be added until the country takes immigration measures deemed sufficient by the White House.

Meanwhile, trade tensions between the United States and China are still unresolved, with rhetoric becoming more negative in the past two weeks.

Meanwhile, the International Monetary Fund warned on Wednesday that US-China tariffs – applied and proposed – could reduce global economic output by 0.5% in 2020. It has also lowered its growth forecasts for China to 2019 from 6.3% to 6.2%.

The IMF has revised down its global growth forecasts in recent quarters as trade tensions and concerns over China fueled stock market declines and hurt corporate earnings.

– Matt Clinch from CNBC contributed to this report.