How Planned Parenthood fight may impact Fed timing

Will Fed raise rates in September?
Will Fed raise rates in September?

The Federal Reserve may want to get ahead of the fiscal policy risks developing in Washington and increase interest rates in September, former Obama administration budget director Peter Orszag said Monday.

In an interview on CNBC's "Squawk Box," Orszag put the threat of a government shutdown at "well over 50 percent" as the Oct. 1 funding deadline looms. The normal short-term stopgap in the form of a continuing resolution has become more complex because of a conservative push to defund Planned Parenthood, he said.

Sen. Ted Cruz, who's running for the GOP presidential nomination, is taking a lead role in attacking Planned Parenthood, which has come under fire from conservatives since a California-based group began releasing undercover videos of officials discussing fetal tissue for research. The Texas Republican told pastors last week that attempts to blame him for any government shutdown would be nonsense.

For its part, Planned Parenthood last week sent a letter to congressional leaders defending its practices—saying the videos were heavily altered by anti-abortion activists.

The last government shutdown came in 2013 over Republican efforts to defund Obamacare, which were also led by Cruz.

"There is some risk—I don't think it's high—but there is some risk of a debt limit showdown in December or January," Orzag said. "The Fed would not want to be tightening or making its first move in the midst of that. That's one more argument for September."

No matter the exact timing of the first Fed rate increase since 2006, "you can't argue 25 basis points is going to change the world," said Orszag, vice chairman of corporate and investment banking at Citigroup.