President George W Bush has nominated Ben Bernanke to succeed Alan Greenspan as US Federal Reserve chairman.
Mr Bernanke had been widely tipped to take the top job at the Fed
The appointment needs to get Senate backing, and President Bush called for swift action to approve the decision.
"He will be an outstanding chairman of the Federal Reserve," Mr Bush said as he made the announcement.
Mr Bernanke is chief economic adviser to the government and had been widely tipped to replace Mr Greenspan, who will end his 18-year tenure in January.
During his time at the Fed the 79-year-old has steadied markets during financial crises, endorsed budget and tax reform, and led the fight against inflation.
By naming his chosen successor three months in advance, Mr Bush appears to be paving the way for a smooth transition - something Mr Bernanke said he hoped to achieve.
"I will do everything in my power, in collaboration with my Fed colleagues to help assure the continued prosperity and stability of the American economy," Mr Bernanke said.
"My first priority will be to maintain continuity with the policy and policy strategies under the Greenspan era."
US Treasury Secretary John Snow added the move would continue Mr Greenspan's legacy of independent leadership at the central bank.
"In Ben Bernanke, the President has chosen the right person to carry on the strong, independent leadership of the Fed," Mr Snow said.
The 51-year-old's appointment was welcomed by Wall Street, as it ended months of speculation about who would become the 14th chairman of the Fed, and so control the richest economy in the world.
The Dow Jones index of leading US shares surged 117.7 points higher to 10,333 within minutes of Mr Bush's announcement at the White House.
Mr Bernanke "carries a lot of credibility in the marketplace", said Robert Macintosh, chief economist at Eaton Vance Management.
"He's well respected in terms of his knowledge and his experience at the Fed. He is seen as a very capable and credible candidate that would prove reassuring in the near term."
But not everyone is pleased.
Some commentators say the Princeton University economist has little experience outside the academic realm.
The nomination also marks the third time in as many years that the president has turned to Mr Bernanke for a sensitive post.
In 2002 Mr Bush put him on the Fed's board and this year made him chairman of the president's Council of Economic Advisors - prompting concerns that he may be "too close" to the Republican government.
"He worries me as the next Fed head. He's very tied to what Bush wants too. Having been made the head of the CEA, Bush has gotten to know him, and feels in control," said John Tierney, credit strategist, Deutsche Bank.
Mr Bernanke is a leading advocate of "inflation targeting" - an approach widely adopted in Europe - under which central banks set a target for inflation and stick to it.
However, Mr Greenspan believes central banks should keep markets guessing on how tough they would be on inflation.