U.S. Markets close in 6 hrs 30 mins

El-Erian: This time, the Fed will hike rates

Reem Nasr

This is a breaking news story. Please check back for updates.

The Federal Reserve will raise interests rates this week because the risks of not raising are far greater, Allianz Chief Economic Adviser Mohamed El-Erian said Monday.

"We're going to get a hike, but it's going to be packaged in one of the most dovish statements you will ever see for a hike," he told CNBC's " Fast Money: Halftime Report ." "They are going to stress this is a very shallow path and it's going to end well below historical averages."

El-Erian also cautioned against the mistake of assuming that bond markets pose only interest rate risk.

"They [investors] don't realize that when they buy a bond, they buy interest rate risk, credit risk, liquidity risk and even sometimes currency risk," he said. "The problem becomes worse when capital is pushed in search of higher yield; so it's a lot of people who have taken on credit risk and liquidity risk and don't quite realize it."

He attributed that to volatile and unpredictable correlations. "It's going to be really uncomfortable in the short term and it will have bad spillover effects, but that's what creates opportunities over the longer term."

Last week, El-Erian told CNBC the new paradigm for financial markets in 2016 is divergence .

"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."

— CNBC's Matthew Belvedere contributed to this report.



More From CNBC