Mohamed El-Erian looks at how Trump can validate the post-election stock market rally

El-Erian: Good policy gets made at intersection of the economy, markets & politics

President-elect Donald Trump needs to build a solid foundation of economic growth drivers, before tackling more politically charged issues, Allianz Chief Economic Advisor Mohamed El-Erian told CNBC on Wednesday.

The early days of the Trump administration will likely be devoted to policies that the Republican-controlled Senate and House can easily get behind, the former co-CEO of Pimco said on "Squawk on the Street."

"He's going to do tax reform, both corporate and household. He will look again to regulation, with a view to deregulate. He will tinker with Obamacare. He will have a major infrastructure program. And he will also look to reform the energy [industry]," El-Erian said.

Trump needs to "build a foundation" of policies that he believes will grow the economy, in order to "validate what the market is pricing in so far," El-Erian argued. Only then can the president-elect move on to trickier reforms on trade deals and immigration, he added.

El-Erian's comments came on the same day Trump chose Wall Street veteran Steven Mnuchin for Treasury secretary and billionaire distressed asset investor Wilbur Ross for Commerce secretary.

Earlier Wednesday on "Squawk Box," Mnuchin said he sees interest rates likely staying low for a few years.

"He's right. Interest rates will be lower than they have been in the past," said El-Erian, chairman of President Barack Obama's Global Development Council. "But [rates] will be going up, as the market prices in the prospects for higher growth and higher inflation."

With a stronger economy and more inflation in mind, El-Erian sees a rate hike at the Federal Reserve's December meeting as a "virtual certainty."

An increase in the cost of borrowing money next month would mark the second such move in the past decade. The last rate rise by the Fed was in December 2015.

But more important than the exact timing of the probable Fed rate hike is the message policymakers deliver to the markets concerning the trajectory for rates next year and the years to come, El-Erian said.