White House Chief of Staff Daley Resigns

White House Chief of Staff William M. Daley surprised President Barack Obama by resigning at the start of a critical election year.

Mr. Obama said Monday that Mr. Daley will be succeeded by White House budget director, Jack Lew.

The exit of Mr. Daley, a former J.P. Morgan Chase & Co. executive who was tasked with repairing the president's soured relations with business and cutting deals with emboldened congressional Republicans, reflects an election-year shift in White House strategy in which Mr. Obama is campaigning on a populist platform to energize the Democratic base.

Mr. Obama praised Mr. Daley as he announced the changes Monday in remarks at the White House. "Obviously this was not easy news to hear, and I didn't accept Bill's decision right away," he said. "Bill has been an outstanding chief of staff during one of the busiest and most consequential years of my administration."

The changes will take effect at the end of January, giving Mr. Lew time to wrap up details on the president's budget proposal due next month. Mr. Obama praised Mr. Lew's advice on the economy and stressed that he also has confidence in his budget director's ability to handle foreign-policy issues as the breadth of his portfolio expands.

"I have every confidence that Jack will make sure that we don't miss a beat and continue to do everything we can to strengthen our economy and the middle class and keep the American people safe," Mr. Obama said.

Mr. Daley offered his resignation to the president in an Oval Office meeting last Tuesday, and Mr. Obama asked him to take some time to think about it. Mr. Daley informed the president of his final decision to leave the following day, officials said, despite his promise in recent months to stay through the 2012 election.

A senior administration official said Mr. Obama "was surprised by Daley's decision."

In his resignation letter, Mr. Daley, who recommended Mr. Lew as his successor, praised the president's leadership on a number of issues and said he was honored to be part of the administration. Mr. Daley, of Chicago, didn't detail his reasons for leaving, other than to say, "It is time for me to go back to the city I love." Mr. Daley didn't reply to emails seeking elaboration on his reasoning.

It is highly unusual for a senior White House official to leave during an election year, and Mr. Daley's departure marks the most high-profile shake-up in Mr. Obama's team since he took office. The move comes as Mr. Obama leans more heavily into his re-election campaign and a strategy in which he is positioning himself as a champion of the middle class.

Mr. Daley was the rare outsider brought inside the Obama White House and had an uneasy time fitting into his role. A Commerce secretary in the Clinton administration, he was named by Mr. Obama last January in part to help repair the White House's relationship with business and broker deals with emboldened congressional Republicans.

But Mr. Daley's management style clashed with some fellow White House staffers, who saw him as unapproachable. And his efforts to cut fiscal agreements with GOP leaders were unsuccessful. At times, his missteps embarrassed the White House.

In November, Mr. Daley announced in a senior staff meeting that he had ceded part of his White House duties to Pete Rouse, a longtime aide to Mr. Obama who served as interim chief of staff before Mr. Daley arrived.

In an interview with The Wall Street Journal at the time, Mr. Daley said the shift in his role was in response to a bitter summer fight between the White House and congressional Republicans over raising the debt ceiling. "The president challenged us all to pick up our game after the summer, and I think we're all trying to do that," he said.

But Mr. Daley's role then was left undefined beyond managing relations with influential outsiders, and he appeared unable to regain his footing.

Mr. Lew, known for his low-key style, is now in his second tour as budget director, having served in the same post under President Bill Clinton. He served as a deputy secretary of state at the start of the Obama administration before moving back to the White House. Earlier in his career, he worked on Capitol Hill as a top aide to then-House Speaker Tip O'Neill.

Mr. Lew, 56 years old, played a central role in the debt-ceiling talks last year, under which Mr. Obama sought to reach a "grand bargain" on deficit reduction, appearing on TV to represent the administration and warning of the consequences should the government default.

At the tail end of the talks, Mr. Obama was about to phone House Speaker John Boehner to seal the final agreement, but first he pulled Mr. Lew aside privately to review the details over one last time, senior administration officials said at the time.

"Before we go, are you comfortable? Should I be comfortable? Does it work? Does it all hang together?" the president asked Mr. Lew. "Now's the time to slow down for a moment." After Mr. Lew said he was comfortable with the agreement, Mr. Obama made the call.

During the tense summer talks, he made a positive impression on Senate Democrats, said one leadership aide. One afternoon, Mr. Lew came to speak before the caucus just minutes after news broke that Mr. Obama was working to negotiate a deal with Mr. Boehner that would include cuts to core Democratic programs. News spread among senators, who were outraged, the aide said.

"He took the full brunt for an hour, and managed to walk the very fine line between listening, defending his boss but not condescending or getting combative," he said. "It was a masterful performance and even though most folks in the room were seeing red, there was a general appreciation for Lew's handling of a very delicate situation."

Another Democratic leadership aide called Mr. Lew the "perfect choice," partly because he knows key Republican staffers from his work during the budget talks.

Unlike Mr. Daley, who came from the business world, Mr. Lew's roots stretch back to liberal Democratic ideals and politics. But he has described his talent as translating between those ideas and political reality that comes in Washington.

"The thing that I learned early on was there's a space in Washington that is not deeply populated, which is a bridge between the highly technical and the political," he told Politico last year. "You didn't have to be the best politician, and you didn't have to be the best numbers cruncher or analyst. But if you could be fluent in both worlds and respected enough in both worlds, you could have an opportunity to be a translator and to make a difference."

An observant Jew, he observes the Sabbath, but he does work when necessary on Saturdays.

The White House didn't say who will succeed Mr. Lew as director of the Office of Management and Budget, a position that requires Senate confirmation.

Mr. Lew is a former hedge-fund executive at Citigroup Inc., where he was managing director of Citi Alternative Investments, an internal private-equity, hedge-fund and real-estate investing arm of the banking giant. Some thought he might face tough questions during his confirmation for budget director. But he earned Republican praise, and after an unrelated matter was worked out, the Senate confirmed him on a voice vote.