The Federal Reserve kept interest rates unchanged in December but opened the door to potential cuts in early 2026 as economic data softens and recession risks rise. While inflation has cooled faster than expected, Fed officials stressed they need more evidence before easing policy, noting pockets of labor-market weakness and tightening financial conditions. Markets reacted sharply as investors priced in a more dovish trajectory for next year, with traders now expecting multiple cuts if growth continues to slow.