White House Chief of Staff William M. Daley resigned at the start of the presidential election year, a surprise decision that underscored President Barack Obama's shift toward a populist platform he hopes will win him another term this November.
Mr. Daley's move marked the end of a rocky yearlong tenure in which the former J.P. Morgan Chase & Co. executive, whose original mission was to reach out to business and congressional Republicans, became increasingly sidelined. Mr. Obama announced Monday that Mr. Daley would be succeeded by the White House budget director, Jacob Lew.
Mr. Daley, the son of legendary Chicago Mayor Richard J. Daley and brother of former Chicago Mayor Richard M. Daley, was widely seen as a face of centrist Democratic politics. Mr. Obama brought him into the White House in the wake of Democratic losses in the 2010 election as the White House sought to recalibrate. Mr. Obama's outreach to congressional Republicans culminated this summer with a fight over raising the debt ceiling and a failed effort to reach a bipartisan "grand bargain" on reducing the federal deficit.
The president has since decided to campaign against Congress, traveling the country with a populist message designed to challenge Republicans. He solidified the shift last month with a speech in Kansas in which he cast himself as a fighter for the middle class against congressional Republicans and Wall Street—an approach ill-suited for Mr. Daley's background and perspective.
Mr. Daley's resignation comes as Mr. Obama had hoped to ride seamlessly into his re-election campaign from a victory last month on extending the payroll tax cut and recent positive economic news. It is unusual for a senior White House official to leave during an election year.
In remarks at the White House, Mr. Obama praised Mr. Daley for aiding him on a wide range of critical issues. "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 he also has confidence in his budget director's ability to handle foreign-policy issues.
In his resignation letter, Mr. Daley didn't detail his reasons for leaving, other than for the Chicagoan to say, "It is time for me to go back to the city I love." Mr. Daley and other White House officials didn't reply to emails seeking elaboration on his reasoning.
Mr. Daley will serve as a co-chairman of Mr. Obama's re-election campaign, which is headquartered in Chicago, campaign officials said. The position will make Mr. Daley part of a group of surrogates for Mr. Obama's re-election effort.
Mr. Daley, a Commerce secretary in the Clinton administration, was the rare outsider brought inside the Obama White House and had an uneasy time fitting into his role. His delegating management style clashed with some fellow White House staffers. His efforts to cut fiscal deals with GOP leaders proved unsuccessful and rankled some Democrats, including Senate Majority Leader Harry Reid (D., Nev.).
The shift in Mr. Daley's role followed 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," Mr. Daley said in an interview with The Wall Street Journal around the time, adding that being White House chief of staff has "been probably the best job I've ever had in spite of the difficulties of the times."
But Mr. Daley's role then was left undefined beyond managing relations with influential outsiders, and he appeared unable to regain his footing as Mr. Obama tacked to the left.
The White House didn't say who would succeed Mr. Lew as director of the Office of Management and Budget, a position that requires Senate confirmation.
Mr. Obama said Monday that "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. Lew, who is known as Jack, is now in his second tour as budget director, having served in the same post under President Bill Clinton. He served in a high-level post at the State Department early in the Obama administration. A former hedge-fund executive at Citigroup Inc., Mr. Lew, 56 years old, has a reputation for having a low-key style. At Citigroup, he was managing director of Citi Alternative Investments, an internal private-equity, hedge-fund and real-estate investing arm of the bank. But he has spent a large portion of his career in government.
As Mr. Obama's budget director, he played a central role in the debt-ceiling talks last year. At the tail end of the talks, Mr. Obama was about to phone House Speaker John Boehner (R., Ohio) to seal the final agreement, but first he pulled Mr. Lew aside privately to review the details 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 also 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."
The liberal group, Progressive Change Campaign Committee, welcomed Mr. Daley's departure in a statement saying, "Today, Wall Street bankers lost one of their best friends in Washington, D.C." A senior GOP leadership aide on Capitol Hill said Republicans didn't expect much of a change with the staff shift, "since the White House strategy isn't to work with us, but to work against us."
Mr. Lew's roots stretch back to liberal Democratic ideals and politics. The late House Speaker Tip O'Neill of Massachusetts was one of his early mentors. But Mr. Lew has described his talent as translating between those ideas and the political reality in Washington. A religious Jew, Mr. Lew observes the Sabbath, but he does work when necessary on Saturdays, an aide said.
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