The Federal Reserve has manipulated interest rates lower in order to push up stock prices, but it will only take one data point to push the central bank to hike rates, Mohamed El-Erian, chief economic advisor at Allianz, told CNBC on Monday.
"They needed to get people to take more risk, to push asset prices up in the hope that as people feel wealthier, they'll spend more. And they got stuck in that mode. I think the key call right now is, will the Fed become more strategic and less tactical," he said in an interview with "Closing Bell."
The data point that could cause that shift is wage growth, El-Erian explained.
"If they see good wage growth, then they will start leading the market rather than just following the market. So keep an eye on the jobs report and the wage number."
The employment report for February is slated to be released on March 10. The Federal Open Market Committee meets the following week.
El-Erian believes the odds of a rate hike in March are about 50 or 60 percent. And now the market is also "waking up to the fact that there is actually a higher probability of a rate hike," he said.
Meanwhile, El-Erian also thinks overall there has been more foundation but not conviction in the markets.
"You have foundation that we are having more reflation in the global economy, that there are better policies underway and that interest rates have been well behaved. But you don't have conviction," he said. "That's why this rally hasn't been embraced as much as it should have been, given how impressive it's been."