The Federal Reserve should be criticized for how it communicates to the market and less so on its monetary policy decisions, closely followed economist Mohamed El-Erian told CNBC on Friday.

"I think the Fed should get less criticism as to what it's doing," El-Erian, chief economic advisor at Allianz, said on "Squawk Box." "But it should be held accountable for how it communicates what it's doing."

El-Erian, who said a "policy mistake" is the biggest risk to the markets in 2019, contended that the central bank under Chairman Jerome Powell made an error in changing the number of potential interest rate hikes next year, while staying the course on its plans to reduce its balance sheet, which peaked at $4.5 trillion.

The balance sheet is largely a portfolio of bonds the Fed bought to stimulate the economy during and after the financial crisis.

"You cannot emphasize that balance sheet management is on automatic pilot," he said. "That puts way too much of a burden on interest rate policy."

The Dow Jones Industrial Average ended last week with its biggest weekly losses in more than 10 years after the Fed raised rates for a fourth time this year, as expected. Stocks went into free fall during Powell's post-meeting news conference Wednesday where he suggested the central bank would not slow its pace of hikes as quickly as some had hoped.

Some Wall Street economists said Powell's comments during the news conference sparked confusion among investors.

El-Erian added that the Fed must be flexible to respond to global factors, including more uncertainty and slowing economies in Europe, China, and Japan. He's surprised by the amount of "flack" the Fed has received relative to the European Central Bank, which he says is "tightening into a much slower economy, bigger debt loads and a more uncertain political environment."

"[The Fed's] gotta convince people that you're much more sensitive to spill-backs from the rest of the world and from technical markets," said, El-Erian, formerly CEO of investment giant Pimco. "If you do that I think the Fed can navigate this period."

There's a chance the Fed could change its stance on rate hikes for 2019. In an interview after the central bank's recent rate decision, New York Federal Reserve President John Williams told CNBC last week that the Fed was open to reconsidering its views on rate hikes next year, sending stocks briefly higher.

The Fed did not immediately respond to a request for comment on El-Erian's remarks.