The current guessing game about the path of the Federal Reserve's monetary policy is causing market volatility.

U.S. Treasuries have already suffered a sharp sell-off after a strong September nonfarm payrolls report caused traders to quickly lower their bets on large future Fed rate cuts.

The decline since Friday pushed the benchmark 2-year and 10-year Treasury yields above 4% for the first time since August. Swap traders now expect an 80% chance that the Fed will cut interest rates by only 25 basis points at its November meeting.

The probability of a 50 basis point rate cut in November has fallen from more than 60% to zero in the past 15 days. El-Erian added that the Fed's communications since 2021 have "amplified" market volatility, even though policy guidance should have the opposite effect.