Pembrolizumab and Decitabine With or Without Venetoclax in Treating Patients With Acute Myeloid Leukemia or Myelodysplastic Syndrome That Is Newly-Diagnosed, Recurrent, or Refractory

Inclusion Criteria: * Documented informed consent of the participant and/or legally authorized representative * Agreement to allow the use of archival blood samples and marrow from diagnostic tumor biopsies. If unavailable, exceptions may be granted with study principal investigator (PI) approval * Eastern Cooperative Oncology Group (ECOG) status =\< 1 * Histologically confirmed AML (not including acute promyelocytic leukemia) or MDS * Patients with the following diagnoses * Refractory/relapsed AML by World Health Organization (WHO) classification, who are not candidates for allogeneic stem cell transplantation or potentially curative chemotherapy (Extramedullary disease is allowed). * MDS by WHO Classification who have failed to respond or relapsed after previous therapies * Must have a life expectancy of \>= 3 months * Fully recovered (=\< grade 1) from the acute toxic effects (except alopecia) or complications of prior anti-cancer therapy, including surgery * Cannot be a candidate for allogeneic hematopoietic cell transplantation (alloHCT) within 90 days of starting treatment on the protocol and should be off pembrolizumab for at least 30 days to become eligible for alloHCT post-protocol therapy * White blood cells (WBC) =\< 25 x 10\^9/L prior to initiation of venetoclax. Cytoreduction with hydroxyurea prior to treatment and/or during cycles 1 and/or 2 may be required * Total bilirubin =\< 2 x upper limit of normal (ULN) (unless has Gilbert's disease) * Aspartate ami…