Mohamed El-Erian, the chief economic advisor at Allianz SE, said on Thursday that with volatility rising, the markets effectively have served as front-runners to the Federal Reserve in tightening global financial conditions.

"I doubt we will see the four rate hikes signaled a few weeks ago by Fed officials," El-Erian said. "Two hikes are likely, if not less."

William Dudley, president of the Federal Reserve Bank of New York, said on Wednesday that financial conditions have tightened considerably in the weeks since the Fed raised rates. He added that policymakers will take that into consideration if the phenomenon persists. So far this year, the benchmark Standard & Poor's 500 Index is down 6.31 percent.

"The Fed signaled that it is now hostage to international developments and markets," El-Erian said regarding the Federal Open Market Committee's latest statement in January.

"The Fed signaled that the outlook was so uncertain, or to use (former) chairman (Ben) Bernanke's phrase, 'so unusually uncertain,' that it wasn't in a position to comment on the balance of risk. That's quite a big signal coming from the central bank."

El-Erian said the Fed could possibly opt for no hikes this year. About the Bank of Japan's surprising move to negative rates, El-Erian said: "Over the longer-term, financial markets will again question whether central banks are the only game in town."