On Tuesday, September 9, the U.S. Bureau of Labor Statistics (BLS) will release preliminary benchmark revisions to its business survey covering the period through March 2025. As per past practice, official monthly employment figures will not be adjusted immediately based on these revisions, with the final revision not expected until February 2026, when it is included in the January 2026 employment report. While seemingly procedural, this revision is highly informative: it effectively redraws the "true trajectory of employment" over the past year. For policymakers, this will alter their assessments of the output gap and labor slack, which in turn will affect interest rates and financial conditions through the policy response function.

A historical mirror: How a downward regression triggers a "complementary reduction"

A preliminary revision in August 2024 showed that the US actually added 818,000 fewer jobs in the 12 months ending in March 2024 than originally reported, equivalent to a job growth rate that was approximately 30% lower than initially estimated. This provided solid evidence of a cooling labor market and coincided with the Federal Reserve's one-time 50 basis point rate cut (5.5% to 5%) in September of that year. Experience shows that while benchmark revisions do not change the current benchmark, they can significantly influence perceptions of the degree of inflation over the past year. When "real" employment is retroactively lowered, a larger single rate cut no longer carries the strong stimulus of a new round of easing, but rather acts more like a rebalancing of previously tight financial conditions.

Current clues: Weakened new growth, serial downward revisions and supply contraction

The latest employment report offers three key signals: First, August's nonfarm payrolls added only 22,000 jobs, a further slowdown from July's 79,000 (revised up from 73,000); second, the downward revisions are extending—June's payrolls were revised down from +14,000 to -13,000, and May's payrolls were revised sharply down from 144,000 to 19,000; and third, supply-side constraints are intensifying. At the Jackson Hole annual meeting (August 22), Powell noted rising downside risks to the labor market and mentioned that tighter immigration policies had triggered an "abrupt slowdown" in labor force growth. Based on this, it can be inferred that the shrinking labor pool is suppressing employment growth while also making the combination of resilient nominal wages and weak job creation more likely. The key question is how policymakers will tolerate and balance the "weak volume and resilient prices" dynamic.

Pricing and positioning: The probability has increased, but the "single amplitude" has not yet kept up

Following the release of the employment data, CME FedWatch showed the probability of at least 75 basis points of rate cuts this year (25 basis points each for the remaining three meetings) jumped from around 40% to nearly 75%. However, pricing in a single cut at the most recent meeting still only reflects approximately 28–29 basis points. This suggests that the market has yet to fully embrace the "faster than the pace" scenario. If the preliminary revision on September 9th again reveals that employment through March 2025 is systematically overestimated, the market may interpret this as a sign that the labor market is weaker than anticipated, shifting bets on the Fed from "continuous 25 basis point cuts" to "catch-up 50 basis point cuts."
Some institutions have already anticipated this scenario. Standard Chartered Bank's head of G10 FX and North American macro strategy noted that, given that a September rate cut is currently priced in at only 28–29 basis points, and that he expects the initial revision covering April 2024 to March 2025 to provide support, the Federal Reserve may implement another 50 basis point "catch-up" rate cut. This argument also includes the fact that disturbances in the birth–death model and a more pronounced downward trend in the employment-to-population ratio may be causing the non-farm payroll and unemployment rates to understate the material softening of the labor market.

Transmission Path: Policy, Yield Curve, US Dollar, and Credit

If the revision is weak and pushes up the marginal probability of "50bp", it will tend to follow the following chain:
First, the policy response function and the space for "complementary cuts" have been opened up. Under the premise that the momentum of inflation decline has not reversed, weaker marginal employment and wider output gap assessments will reduce the resistance to "big cuts."

Second, the yield curve may experience a bullish steepening: the front end (e.g., the two-year) is highly sensitive to policy pricing and will decline first; the medium- and long-term end will depend on the repricing of medium-term inflation and the neutral interest rate. If a contraction in labor supply is coupled with a slowdown in growth, the nominal central rate may not shift significantly downward. However, with improved risk appetite and a return to duration demand, the 10-year nominal yield may still have downward flexibility.

Third, the US dollar and commodities may diverge due to financial conditions: a more dovish path usually suppresses the short-term interest rate differential advantage of the US dollar and is marginally beneficial to some commodities; but if the revision is too large and triggers growth concerns, the outlook for commodity demand will also be under pressure.

Fourth, in terms of credit and liquidity, a faster decline in policy interest rates will help reduce the marginal cost of financing, ease refinancing pressure, and benefit investment-grade spreads; but under the narrative of "significant weakening of employment", the high-yield sector is still sensitive to the prospect of defaults, and the compression of spreads may be uneven.

Operational context: focus on three details

We will focus on tracking three indicators to calibrate the degree of weakness: (A) the distributional effect of benchmark revisions on the private sector and small and micro enterprises, to identify which industries are primarily responsible for the deviations from the life-death model; (B) marginal changes in the employment-population ratio and the labor force participation rate, to decompose the weights of “supply contraction” and “demand weakening”; and (C) the degree of fit between benchmark revisions and the chain of consecutive downward revisions in recent months, to determine whether statistical overestimation is being systematically corrected.

Conclusion

This preliminary benchmark revision will not change the official tone, but it may alter the portrayal of the past year's true economic conditions. Combining the August non-farm payroll report of just 22,000, the recent series of downward revisions, and tightening labor supply, analysts believe that whether there is room for another 50bp increase will depend more on the marginal evidence provided by the revision. Given that current pricing does not fully reflect this path, the release of this information presents both trading risks and opportunities.