The Federal Reserve is expected to raise its key interest rate this week, but it's unlikely to hike by 100 basis points, a massive move that would rattle investors, CFRA Research said Monday.

Sam Stovall, chief investment strategist at CFRA, said in a research note that a 100 bps hike would unnerve Wall Street as it would imply that the Federal Open Market Committee is overreacting to the data.

He said that it would make it more likely that the FOMC will overtighten and make it less likely that a soft landing will happen.

On Wednesday, the Fed is expected to raise its rate for the fifth year in a row. The fed funds rate is expected to increase by 75 basis points in the next few months. According to the FedWatch tool, 20% of investors think the Fed will vote for an increase of 100 basis points.

Stovall said last week's hotter-than- expected inflation report suggested a slower growth path for gross domestic product into the end of the year. Headline inflation was lower in July but still higher than the consensus estimate.

The yield on the Treasury was moving higher. The Fed-policy sensitive 2-year Treasury yield hit 3.96% for the first time since 2007, while the 10-year Treasury yield rose above 3.5% for the first time in four years. The yield curve is indicative of an economic downturn.

The worst week for US stocks since June happened last week, with the S&P 500 falling 4%. The S&P 1500 fell last week.

The June lows will hold despite the possibility of an additional near-term decline in equity prices, according to CFRA Research.