Create EC2 Keypair in CloudFormation template

You can absolutely do this.

First, create the keypair: https://docs.aws.amazon.com/AWSCloudFormation/latest/UserGuide/aws-resource-ec2-keypair.html

Then, when you are creating the instance you can reference the keypair: https://docs.aws.amazon.com/AWSCloudFormation/latest/UserGuide/aws-resource-ec2-instance.html#cfn-ec2-instance-keyname

Edit (adding further details based on comment below): In the documentation on the page linked above it says this about downloading the newly created keypair:

When you create a new key pair, the private key is saved to AWS Systems Manager Parameter Store, using a parameter with the following name: /ec2/keypair/{key_pair_id}