All eyes are on the Federal Reserve this week with a two-day meeting culminating with a rates decision on Wednesday.

Investors are holding out hope that Fed Chair Jerome Powell lays the groundwork for a rate cut as soon as July, followed by two more before the year is out.

Even just one this year would be a mistake, says Amanda Agati, co-chief investment strategist at PNC Financial.

"That would absolutely be a policy misstep. With industrial production data coming in ahead of expectations, retail sales ex-autos and gas beating up expectations, earnings season for Q1 beating and Q2 revisions moving in a positive direction, it just seems to me as if the backdrop doesn't warrant that swift of a policy reversal and that cuts really shouldn't be on the table," said Agati on CNBC's "Trading Nation" on Friday.

The U.S. economy looks to be in better-than-expected shape for the quarter even with U.S.-China trade tensions causing market chaos. The Atlanta Fed upped its second-quarter GDP target to 2.1% on Friday, up from 1.4% a week earlier.

Though economic data is improving, the market is still gung-ho on a rate cut, possibly as soon as July. That expectation is a major misunderstanding, says Agati.

"From a fed funds futures perspective, we're pricing in a near certainty of multiple rate cuts between July and the end of the year and I absolutely think the market's gotten ahead of itself," said Agati. "You saw the real strength and pop in the market following Powell's speech."

Stocks soared earlier this month after Powell pledged to monitor economic developments and act "as appropriate to sustain the expansion." Agati says the markets misinterpreted those remarks.

"I think he was really just trying to say, "Look, we remain data dependent. We're open. If things start to soften materially we'll take the necessary action" and I think the market really read that as rate cuts on the table," said Agati.

Markets are pricing in just a 24% chance of a rate cut at the Fed meeting this week, according to CME fed funds futures. The probability of a 25 basis point reduction in the fed funds rate rises to 65% in July.

"We're setting ourselves up for a potential disappointment and even a short-term correction of sorts," said Agati on the effect on the stock market. "There will be some short-term volatility, certainly, but that's nothing new. We're kind of used to that over the last few months."