Economist Mohamed El-Erian said Monday the Federal Reserve wasted a large part of its monetary policy arsenal to fight the economic fallout of the coronavirus by doing things backward.

"There's a problem with both what the Fed did and what the Fed did not do. As result of that, ... you saw that clearly in how the futures traded," the Allianz chief economic advisor said on CNBC's "Squawk Box."

U.S. stock futures were "limit down" 5% on Monday morning despite the Fed's extraordinary announcement Sunday of a massive monetary stimulus campaign and an interest rate cut to zero. The exchange-traded fund that tracks the S&P 500, which has no mechanism to curb downside, was off more than 9%.

"We should have been more laser-like focused on areas of market failures ... and then followed up with more general interest rate cuts when that can have an impact," El-Erian argued, stressing that lowering rates and making loans cheaper won't change the spending behavior of consumers who are not leaving their homes.

The Fed on Sunday cut rates by 1% in an emergency move down to 2008 financial-crisis levels of 0% to 0.25%. Rates during and after the crisis stayed near zero for seven years before the first hike in 2015.

In another action from the financial-crisis playbook, the Fed launched a massive $700 billion quantitative easing program as well as multiple other measures aimed at keeping liquidity flowing through the financial system.