The market's violent reaction to hotter-than-expected inflation may usher in more losses.

Investor Peter Boockvar believes Wall Street is coming to grips with a painful reality: Inflation isn't moderating, so the Federal Reserve won't pivot.

"After next week's rate hike, we're going to start playing a dangerous game with the state of the economy. The next rate hike is going to be only the second time in 40 years that the Fed funds rate is going to exceed the prior peak in a rate hiking cycle," the Bleakley Advisory Group chief investment officer told CNBC's "Fast Money" on Tuesday. "We're getting into treacherous waters."

According to Boockvar, a 3/4 point hike at next week's Fed meeting is virtually a done deal — despite signs of softer commodity prices and used car prices slowing down.

"The BLS [Bureau of Labor Statistics] lags in how it captures that. So, that's why we have this sort of two-lane highway with both sides going in opposite directions," said Boockvar. "We rallied 200 S&P points in the four days leading into today [Tuesday] because the markets are driving on one side, and the BLS hasn't yet captured that. Unfortunately, the Fed is also lagging in terms of how they're reacting to things. They're driving also with a rear-view mirror type of mentality."

The major indexes fell to June 2020 lows after the August consumer price index [CPI] rose by 0.1% to 8.3% over the past year. A meaningful drop in gasoline prices failed to offset rising shelter, food and medical care costs. According to Dow Jones, economists thought the index would fall by 0.1%.

The inflation move higher prompted Nomura to officially changed its rate hike forecast. It now expects the Fed to raise rates by a full point at the next meeting.

Boockvar, a CNBC contributor, doesn't expect the Fed to go that far. However, he warns investors will still have to deal with the economic consequences from wealth destruction to earnings declines.

"If labor costs remain sticky, if they continue to rise at the same time the revenue side starts to slow in the face of this slowing economy, you're going to have further cuts in earnings estimates at the same time," he said. "I don't think this market just ends with a [p/e] multiple at 17x."

Boockvar believes multiples will ultimately be 15x or lower.

CNBC "Fast Money" trader Brian Kelly also sees more trouble for stocks and the economy, particularly housing.

"We're just barely seeing the cracks in housing. So, as that starts to come down, people are going to feel like they had less money than they did before… And then, we don't know what that's going to do to the economy," he said. "This 75 [basis point rate hike] might even be a mistake. We know there's a lag."

And, that could even be too much for the economy to handle.

"This is a Federal Reserve that could not raise interest rates 25 basis points in 2018 and actually turned the market into a convulsion, and ultimately they had to step back in and begin this easing process," Tim Seymour, another "Fast Money" trader, added. "We went from a place where we could not raise rates even in good times let alone difficult times."

The next Fed meeting is from Sept. 20 to 21.

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