US President Donald Trump said he's firing Federal Reserve governor Lisa Cook, an unprecedented move that would constitute a sharp escalation in his battle to exert greater control over what has long been considered an institution independent from day-to-day politics.

Trump said in a letter posted on his Truth Social platform that he is removing Cook effective immediately because of allegations that she committed mortgage fraud.

Bill Pulte, a Trump appointee to the agency that regulates mortgage giants Fannie Mae and Freddie Mac, made the accusations last week.

Pulte alleged that Cook had claimed two primary residences – in Ann Arbor, Michigan, and Atlanta – in 2021 to get better mortgage terms. Mortgage rates are often higher on second homes or those purchased to rent.

Trump's move is likely to touch off an extensive legal battle that will probably go to the US Supreme Court and could disrupt financial markets, potentially pushing interest rates higher.

The independence of the Fed is considered critical to its ability to fight inflation because it enables it to take unpopular steps like raising interest rates. If bond investors start to lose faith that the Fed will be able to control inflation, they will demand higher rates to own bonds, pushing up borrowing costs for mortgages, car loans and business loans.

Legal scholars noted that the allegations are likely a pretext for the president to open up another seat on the seven-member board so he can appoint a loyalist to push for his long-stated goal of lower interest rates.

Fed governors vote on the central bank's interest rate decisions and on issues of financial regulation. While they are appointed by the president and confirmed by the Senate, they are not like cabinet secretaries, who serve at the pleasure of the president. They serve 14-year terms that are staggered in an effort to insulate the Fed from political influence.

The announcement by Trump came days after Cook said she wouldn't leave despite the US president previously calling for her to resign.

"I have no intention of being bullied to step down from my position because of some questions raised in a tweet," Cook said in a previous statement issued by the Fed.

Senate Democrats had expressed support for Cook, who has not been charged with wrongdoing.

Another Fed governor, Adriana Kugler, stepped down unexpectedly on August 1, and Trump has nominated one of his economic advisers, Stephen Miran, to fill out the remainder of her term until January.

"The Federal Reserve has tremendous responsibility for setting interest rates and regulating reserve member banks. The American people must have the full confidence in the honesty of the members entrusted with setting policy and overseeing the Federal Reserve," Trump wrote in a letter addressed to Cook, a copy of which he posted online.

"In light of your deceitful and potentially criminal conduct in a financial matter, they cannot and I do not have such confidence in your integrity."

Trump argued that firing Cook was constitutional, even if doing so will raise questions about control of the Fed as an independent entity. (AP)