Mark Kiesel, Pimco's chief investment officer of global credit, told CNBC on Thursday that he expects the Federal Reserve to slash interest rates next month if trade talks do not progress between the United States and two of its top trade partners.

The rate cut could amount to half a point if duties on Mexican imports go into effect Monday and the leaders of the U.S. and China fail to meet at the G-20 summit in Japan later this month, he said.

"It's going to depend a lot on trade. It's very much motivated, now, about uncertainty and what happens politically," Kiesel said on "Power Lunch." "If this extended trade war is not resolved then yes, I think the Fed could cut as soon as July and I think that they'll go 50 basis points."

The Fed's current target range for its benchmark interest rate is 2.25% to 2.5%. Chairman Jerome Powell said earlier this week that the central bank is "closely monitoring" the impact of tensions on the economy and would "act as appropriate to sustain the expansion."

With a trade war with China lingering for more than a year, President Donald Trump then ignited trade tensions with Mexico in late May. He threatened to slap 5% tariffs on goods from the southern U.S. neighbor to pressure Mexico to reduce the flow of migrants crossing the border.

The ultimatum includes incremental tariff hikes to 25% by October. Kiesel said a possible interest rate reduction hinges on the worse-case scenario in relations with Mexico.

"I think if we got the initial 5% and then Congress started to put pressure on Trump, and if that's all we got, then perhaps we're set up for the Fed to be on hold," he said. "But if we get escalation of those tariffs with Mexico, then I think the business uncertainty will increase materially."

Pimco, a California investment management firm that had $1.7 trillion in assets under management as of March, is most worried about the long-term implications on politics, populism and deterioration in U.S. relations with China. Kiesel said they are "secular issues that aren't going away."

The firm thinks stocks are high and credit spreads are tight, "particularly given the fact that we think recession risk is increasing," he said. "So any rally in risk assets we would look to de-risk portfolios, and we have been, in fact, on the more cautious side of markets, particularly equities and credit."

Kiesel expects there to be "significant" winners and losers in the credit and equity sectors. The company is already "cautious" about the automotive industry, and the trade disputes put more pressure on the group as an investment avenue, he said.

However, if trade talks progress, it could help change sentiment and spark a relief rally in the near term, he said.

U.S. and Mexican officials are expected to continue negotiations Thursday evening.