WASHINGTON (MarketWatch) — Ever since Ben Bernanke uttered those three little words — “next few meetings” — three weeks ago, financial markets have lived and died on every rumor about whether the Federal Reserve would soon taper its purchases of $85 billion per month in bonds.

The markets are now watching with great anticipation the results of the Fed’s two-day policy meeting, which concludes Wednesday with the 2 p.m. release of its statement, followed at 2:30 p.m. by Bernanke’s press conference. Will the Fed announce that it will reduce its bond buying immediately, or in a few months? Or will the Fed confirm that the purchases will continue at the current rate for the foreseeable future?

All this anxiety started at a hearing of the Joint Economic Committee on May 22, when the Fed chairman was asked if it were possible that the Fed could begin to step back from what’s known as QE3 (quantitative easing, round three).

In a moment of weakness and candor, Bernanke acknowledged that it was possible that the Fed could gradually reduce its purchases in the “next few meetings” if it saw enough real and substantial improvement in the economy. With those three words, Bernanke negated the other 8,589 words he spoke that day that emphasized how weak the economy remains, and how necessary it is for the Fed to keep doing what it’s doing.

The markets heard what it wanted, and they have gyrated wildly almost every day since. Markets got a lift one day from a story by my colleague Jon Hilsenrath of the Wall Street Journal, who suggested that the Fed wasn’t in any hurry. On another day, markets slipped after Robin Harding of the Financial Times wrote that the Fed would begin to taper soon, after all.

I don’t have any inside knowledge (I doubt that Hilsenrath or Harding do either), so all I can do is look at what Bernanke and other Fed officials have said, and at the data that they say will determine what they’ll do.

Bernanke has been very clear on this subject: What matters most is the outlook for the labor market. Inflation and financial stability will also play a role in the Fed’s decision about when to taper QE3.

“Any change in the flow of purchases would depend on the incoming data and our assessment of how the labor market and inflation are evolving,” Bernanke said at the May hearing. “The committee has said that it will continue with securities purchases until the outlook for the labor market has improved substantially in a context of price stability.”

The primary question for the Fed, then, is whether the outlook for the labor market has improved.

Following are seven charts covering the labor market, inflation and financial conditions. These seven charts tell the Fed that it’s not time to taper.

Nonfarm payrolls have increased at an average rate of 194,000 over the past six months, not much better than they have since 2011. MarketWatch

The most straightforward approach to analyzing the health of the labor market is to simply ask how many jobs are being created each month.

The chart above shows that payroll growth has accelerated modestly since QE3 was adopted last September. As Bernanke said in his testimony, “gains in total nonfarm payroll employment have averaged more than 200,000 jobs per month over the past six months compared with average monthly gains of less than 140,000 during the prior six months.”

We’ve had one additional payroll report since he spoke. As of May, payrolls had grown by an average of 194,000 per month over the past six months. That’s good, but it’s not good enough.

As Bernanke went on to remark, “Despite this improvement, the job market remains weak overall. The unemployment rate is still well above its longer-run normal level. Rates of long-term unemployment are historically high. And the labor force participation rate has continued to move down. Moreover, nearly 8 million people are working part-time even though they would prefer full-time work.”

It’s clear that Bernanke doesn’t think 194,000 a month is a substantial improvement in the labor market.

Payroll growth doesn’t support tapering at this time.

We’ll look at his other points next.

MarketWatch

One thing that sets this recession apart from the others is the persistence of unemployment. Simply put, every month someone remains unemployed reduces the chances of being rehired.

The chart shows that the number of people who’ve been out of work longer than six months remains extraordinarily high. And bear in mind that some of the “improvement” in this statistic is a mirage: Once people give up looking for work, they are no longer counted as “unemployed.” But they don’t have jobs, which is what counts.

Long-term unemployment can become permanent unemployment. “Employers are reluctant to look at people who’ve been out of work for a long time, even if they appear to be qualified, just on the assumption that if you haven’t had a job for six months, there must be something wrong with you,” Bernanke said at the hearing in May.

“That is one reason for the urgency of trying to get people back to work as quickly as possible,” he said. Getting people back to work quickly is the whole point of QE3.

The level of long-term unemployment doesn’t support tapering at this time.

The percentage of adults aged 25 to 54 who have jobs or are actively looking as fallen by two percentage points. That little blip upward at the left is encouraging, but is it a new trend? MarketWatch

Not only are more people suffering bouts of long-term unemployment, more people are simply giving up on working, at least temporarily.

The decline in the labor force participation rate has been well documented, but there is intense disagreement about how high the participation rate should be, given that millions of people are reaching retirement age every year. How much of the decline is simply demographics, and how much is a cyclical problem?

The chart above avoids that argument by looking just at people in their prime working years, ages 25 to 54. Even this measure has seen a dramatic decline in participation rates since the recession, but very little improvement.

The low participation rate doesn’t support tapering at this time.

Since the recession, about twice as many people are being forced to settle for a part-time job when they want to work full time. MarketWatch

Record numbers of people have been forced to take a job that doesn’t meet their needs. We don’t know how many millions are underemployed in a job they are overqualified for, but we do have an idea of how many are working fewer hours than they’d like.

The chart above shows the number of people who would like to have a full-time job, but have been forced by the weak economy into taking a part-time job. Millions more have seen the hours of their job reduced from full-time to part-time.

These are the hidden unemployed. They have jobs, but they aren’t earning the incomes that they could or should. The lack of incomes is restraining spending, which in turn limits job opportunities for others.

The high level of involuntary part-time work doesn’t support tapering at this time.

Inflation expectations signal a very low inflation environment for years to come. MarketWatch

The preceding charts show some progress on bringing the labor market back to health, but not nearly enough. The Fed has more than jobs to worry about, however; it must also try to keep inflation stable.

Unfortunately, the Fed is failing on this goal as well. The Fed has let inflation get too low.

Current inflation rates are extremely low. The consumer price index has risen just 1.4% in the past year, while the Fed’s preferred measure of consumer prices (the personal consumption expenditure price index) is up just 0.7% in the past year.

“Inflation, if anything, is little bit too low,” Bernanke said in his May testimony. It was a point he hammered over and over. Bernanke mentioned the dangers of letting inflation get too low 16 times.

He means it.

But what about future inflation?

No one can predict inflation with any absolute precision, but the best estimates come from looking at the current level of inflation and at what individuals, businesses and investors expect in the future.

The chart above shows that inflation expectations continue to fall. According to the Cleveland Fed, inflation is expected to average 1.4% over the next 10 years, based on a combination of market prices and survey results.

Falling inflation expectations don’t support tapering at this time.

Fed officials are trying to monitor financial markets more closely after the failures of 2008. The Chicago Fed’s index measures risk, credit and leverage in many financial markets. MarketWatch

Finally, the Fed needs to keep its eye on the financial system for signs of stress, which could lead to catastrophes like 2008.

The Fed is just beginning to quantify financial stresses. Four separate Fed regional banks produce versions of a financial stress index to give the Fed an early warning about imbalances.

The chart above shows the Chicago Fed’s National Financial Conditions Index. It’s designed so that normal conditions have a zero value, and each unit on the index represents one standard deviation. Even after some wild days on Wall Street and in the bond pits, the current level of the index show that conditions are moderately easy, just as the Fed intends.

Financial conditions don’t support tapering at this point.