Geithner: unemployment could rise

Treasury Secretary Timothy Geithner said the U.S. unemployment rate could rise for two months before it drops, potentially deepening Democrats' problems in the November congressional elections.

It's possible you're going to have a couple of months where it goes up, Geithner said on ABC's Good Morning America interview broadcast on Tuesday and taped a day earlier.

But what we expect to see ... is an economy that's gradually healing. Of course we want to do what we can to reinforce that process because it's not growing back as quickly as we'd like.

A rising jobless rate before November mid-term elections will be an unwelcome development for Democrats seeking to keep control of Congress as President Barack Obama's popularity has already been battered by a sluggish economy.

A Reuters economist survey estimates that the unemployment rate rose to 9.6 percent in July from 9.5 percent in June. The July report is scheduled to be released on Friday.

Many economists think the jobless rate may rise a bit more as discouraged workers rejoin the labor force. The unemployment rate counts only those who are actively looking for work, not those who have given up the search.

The economy has added jobs in five of the past six months, which may entice some discouraged workers to resume looking, although private sector hiring remains weak.

In an opinion piece Tuesday in The New York Times, Geithner said he saw some positive signs emerging in the private sector.

While the economy has a long way to go before reaching its full potential, last week's data on economic growth show that large parts of the private sector continue to strengthen, he wrote.

We have a long way to go to address the fiscal trauma and damage across the country, and we will need to monitor the ups and downs in the economy month by month.

A report last week showed the economy has grown for four consecutive quarters, although the pace of recovery lost some steam heading into the summer.

Many economists have lowered their growth forecasts for the rest of the year because of concerns the recovery will fade as government stimulus spending eases.

That may be weighing on the minds of U.S. Federal Reserve officials, who meet next week to discuss monetary policy.

Although the Fed is widely expected to keep its benchmark short-term interest rate unchanged near zero, officials may talk over what more steps might be needed to give the recovery an extra jolt.

Asked in the ABC interview about his future plans and whether he would stay for Obama's whole first term, Geithner replied, I will stay as long as he asks me to stay.

(Reporting by Tabassum Zakaria; Editing by Vicki Allen and Doina Chiacu)