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El-Erian: GOP candidate Fed response 'critical'

Before the GOP presidential combatants fired their first salvos at their debate Wednesday, the Federal Reserve sounded off on the state of the economy.

Economist Mohamed El-Erian said he'll be closely watching the debate to see if the candidates understand the gravity of an eventual Federal Reserve rate hike.

"Over the longer term, it's all about the handoff," Allianz' chief economic adviser said on CNBC's "Closing Bell." "If you believe the Fed will succeed in handing off to other policymakers, then these valuations make sense. And the debate tonight is going to be really important as to whether our politicians realize that we need this critical handoff in economic policy."

What's going on in the debate? Watch live and weigh in.

Major stock indexes closed up 1 percent after the Fed opted to leave interest rates unchanged at the conclusion of the its October policymaking meeting Wednesday. It cited weak domestic data in job gains, exports and inflation.

The timing of the Fed's decision will have huge implications for stocks, bonds and loans.

"They know if they maintain the current path, they risk unintended consequences and collateral damage, particularly when it comes to financial stability," El-Erian said.

One expert said the Fed's call is as much political as it is economic.

"I think this was much more a political than an economic decision," Boris Schlossberg, managing director at BK Asset Management, told CNBC. "They have just been under such massive pressure to actually get off the zero standard, even though the fundamentals, in my opinion, really don't justify it. We don't have runaway wage inflation, … and the economy is basically just muddling along."

Watch CNBC's "Your Money, Your Vote: The Republican Presidential Debate." Coverage has begun, so watch now. The debate will feature two sets of candidates discussing critical issues facing America today, including job growth, taxes and the health of our economy