The U.S. Federal Reserve faces a complex economic landscape in 2026, balancing persistent inflation with a weakening job market. Despite inflation cooling slightly to 2.7% year-over-year in November 2025, shelter costs remain high. The labor market shows signs of strain, with unemployment at 4.6% and slower job growth, prompting anticipation of interest rate cuts. The impending retirement of Chair Powell in May 2026 and President Trump's potential appointment of a new chair add further uncertainty to monetary policy decisions.