Allianz Chief Economic Adviser Mohamed El-Erian said Thursday the new paradigm for financial markets in 2016 is divergence.
"Are divergent central banks ... still able to repress the volatility that comes from geopolitics ... [and] economics? That is going to be the great question," the former Pimco co-CEO told CNBC's "Squawk Box."
"Central banks are no longer on the same side," El-Erian said. "The Fed is going to be easing its foot off the stimulus accelerator [while] the ECB, the Bank of Japan, and the People's Bank of China are going to be pressing harder on the stimulus accelerator."
The Federal Reserve next week is expected to deem the economy and job market strong enough to withstand the first hike in short-term interest rates in nine years. The fed funds overnight lending rate has been near-zero percent since December 2008 in the wake of the financial crisis. The Fed meets on Tuesday and Wednesday, followed by the release of a summary of economic projections and a news conference from central bank chief Janet Yellen.
In a separate interview, David Blitzer, chairman of the S&P Dow Jones index committee, told "Squawk Box" that a Fed rate hike would be "more relief than cataclysmic."
"It's got to be one of the most anticipated Fed rate increase in modern times," he said.
In recent years, El-Erian said, "central banks delivered the three things that investors like most: high returns, low volatility and favorable correlations."
"[But] now that central bank effectiveness is in doubt, all three are moving," he said. "That's where the tactical opportunities come. But you have to be really, really nimble in this environment."
El-Erian was wary of the current investing climate because of what he calls "unhinged markets" in three areas: commodities, emerging markets currencies and high-yield bonds.
Unhinged oil, as he calls it, has recently been the driver on Wall Street, with volatility in crude Wednesday knocking the stock market lower for the fifth session out of the last six. The decline Wednesday in the sent the index into negative territory for the year, joining the Dow Jones industrial average in the red for 2015.
While outsized market moves can be jarring, he stressed that they can be exacerbated toward the end of the year. "Markets overshoot on the way up and markets overshoot on the way down," El-Erian said. "That's our reality. And it gets worse at year-end because people want protect their balance sheets."
Crude had gained nearly 4 percent early Wednesday, after the government reported surprise drawdown in U.S. stockpiles. But the rally faded, and prices briefly fell back below $37 a barrel. U.S. oil prices, measured by West Texas Intermediate crude, are off nearly 40 percent in the past six months.
"A year or two years from now the story we're all going to remember is oil. It's not the Fed," Blitzer said. "I don't see anything that pushes oil even somewhat back to where it used to be."
Blitzer, an economist, said the American economy will benefit over the long term from lower oil because of the boost to consumers. "If you stack up [oil] producers and consumers in the U.S. economy, there are more consumers than there are producers."
"Sixty dollars suddenly sounds awfully expensive for oil [now] even though two years ago, $60 sounded like a 50 percent sale," he said.