The Federal Reserve (Fed) will likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the "totality" of incoming information suggests tougher measures are needed to control inflation, Fed Chair Jerome Powell told U.S. lawmakers on Tuesday.

While some of that unexpected economic strength may have been due to warm weather and other seasonal effects, Powell said it may also be a sign the Fed needs to do more to temper inflation, perhaps even returning to larger rate increases than the quarter-percentage-point steps officials had been intending to use going forward.

The comments were Powell's first since inflation unexpectedly jumped to a 40-year high in January. The Fed's policy rate is currently in the 4.50 percent-4.75 percent range.

Equity markets on Tuesday added to initial losses and ended the day sharply lower, with the S&P 500 index dropping 1.53 percent, the Dow Jones Industrial Average plunging 1.72 percent and the Nasdaq Composite sinking 1.25 percent, reported China Central Television (CCTV).

The U.S. dollar also rose, and yields on the 2-year U.S. Treasury climbed above 5 percent – the highest since 2007.

Meanwhile, European Central Bank officials have also signaled the prospect of rate hikes in recent days, according to CCTV. All three major European stock markets fell on Tuesday, with London's benchmark index down 0.13 percent, Paris off 0.46 percent and Frankfurt down 0.6 percent.

Oil prices also saw marked declines of over 3 percent for the day. WTI U.S. crude for April delivery settled at $77.58 a barrel, while Brent crude futures for May delivery were at $83.29 per barrel.

(With input from Reuters)