"It's too close to call," he said. "And the big question is not whether they are going to hike or not. The big question is why are we so obsessing over a single hike? And that says a lot about how codependent markets and central banks have become."
Investors should be aware, El-Erian said, that the U.S. central bank will likely undergo the "loosest tightening in the history of the Fed"—meaning a gradual increase with a relatively low terminal point.
"If we were to look at the journey, we would obsess much less with the Fed," he added.
Instead, El-Erian said global markets may be experiencing a shift to a "higher-volatility regime," meaning that asset allocations will become aggressive and price multiples will begin "looking high."
When such conditions occur, he said, markets will overshoot and act with too much correlation—so "you get value that pays you overtime."
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El-Erian added that both emerging markets and oil have become unhinged, and there may be some opportunities appearing. He admitted, however, that one's investment horizon will affect whether to get in now.
"If you already have exposure, wait a little bit, there are going to be even more attractive positions—there are still people stuck in those markets looking to get out," he said. "We're going to look back on this, and this is going to be a very attractive stage."
"It's one of these things that happens once a decade ... but be careful because it's going to be incredibly volatile in the next few months," he added.
The economist also said his call to move to cash is less of a "slam dunk" than it was because—although volatility may rise—the American economy continues to recover and parts of the U.S. corporate sector are seeing positive developments.