Taking just one look at the recent economic data, Jim Cramer says the Federal Reserve is looking "dumb and dumber."

First employment looked lackluster, then the services PMI came in weaker than expected for August. Cramer wondered why Fed Chair Janet Yellen offered any forecast at all about raising interest rates, and what Vice Chair Stanley Fischer was thinking when he talked about the possibility of two rate hikes this year.

Cramer's research indicated that approximately only 20 percent of the would benefit from a rate hike, and 80 percent would not.

"I say prepare for the worst — weak data going into a rate hike — by having an elevated cash position, selling into strength, while accepting that you are going to miss a couple percentage points of upside if Janet Yellen does the right thing and leaves rates unchanged. Believe me, you will be able to get back in if they do nothing," the "Mad Money" host said.

Having extra cash ready going into the September meeting seemed to Cramer like a better risk-reward scenario.

Even when he took into consideration the recent strength in housing and non-residential construction, Cramer believes the Fed should not raise rates.

"I now believe that the Fed is going to tighten anyway and we have to prep ourselves for lower stock prices when they do, because of this weaker data," Cramer said.

How can investors protect themselves if the Fed decides to raise rates?

"I think you get ready for the possibility of a December 2015-style sell-off," Cramer said.

Initially, when the Fed raised rates in December, stocks had an insignificant drop. But as the dollar gained and the rest of the world weakened, the S&P fell to 1,827 in February.

However, Cramer doesn't expect a rate hike now to prompt as large of a decline because the sell-off earlier in the year also had falling oil prices mixed in. Yet, he can't dismiss what happened earlier in the year.

"I know some people will say that this means I have become a bear. Hardly. I prefer to say that we have a new set of circumstances that is not as favorable to the bulls on a macro level, even as I am pretty sanguine about what individual companies can do to improve their own standing, hence all of the takeovers we are getting," Cramer said.

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