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The collateral damage and unintended consequences of this prolonged experiment with very low interest rates [and] very big balance sheets are starting to have a meaningful [negative] effect on the economy, El-Erian told CNBCs Squawk Box.

Without a clear idea for the future of growth, the Fed has become overly data-dependent, El-Erian said, arguing that such an approach has been sending conflicting signals over time.

The former co-CEO of Pimco said investors are left wondering whether the Fed is being totally inconsistent or the Fed [is] being a slave of the markets.

The Fed raised rates in December for the first time in more than nine years. At the time, central bankers projected four more rate hikes in 2016. But the new year market turmoil scaled back those expectations.

As the stock market bottomed on Feb. 11 and marched higher, the minutes from the Feds April meeting put a June or maybe a July hike on the table. But recent concerns about what next weeks vote in the UK on whether to exit or stay in the European Union trading block have hurt stocks and pushed expectations of any future rate increases much further out.

The futures market now sees less than a 50 percent chance of even one hike by year-end.

Fed Chair Janet Yellen, in her post-meeting news conference Wednesday, even mentioned Brexit, and questioned how a leave vote could hurt the US economy, as a reason for not raising interest rates.

Yellen also broke out the phrase new normal to explain why central bank officials expect rates and economic growth to remain low through 2018.

The Fed is late to the party on that notion, argued El-Erian. [Pimco] first said new normal in 2009.

El-Erian said its difficult for Fed officials to resign themselves to the fact that slow growth was the result of structural, rather than cyclical factors. They were hoping for the handoff to a stronger economy after years of stimulus measures, he added.

The term new normal, coined by El-Erian and Pimco about seven years ago, referred at the time to the probability of prolonged slow economic growth, high unemployment and government debt problems.