The stock market's fragility – exposed by a series of volatility events in recent months – suggests that the Fed should tread carefully. However, policymakers, it seems, are focused on bracing for the next crash, and have telegraphed to the market that they will continue to hike rates, even as they struggle for justification.

All of this suggests that stocks could be in for a hard landing as soon as this fall, Paul said.

"I think that it will have a negative effect but I'm not going to say where it's going exactly. I would not be shocked if in October if its 25% lower than it is now."

When the next crash does arrive, Paul believes the Fed will be powerless to arrest it.

"I think the markets are very nervous for good reason: They don't know what to expect and while it's unpredictable what the Fed will do, it's also unpredictable how the markets will react."