William Daley is stepping down as White House chief of staff and budget director Jack Lew is taking over the President Obama’s team as it heads into a tough election year, senior administration officials say.

Daley gave his letter of resignation to the president in a private meeting in the Oval Office last week, recounting the administration's successes of his one year on the job and saying it was time for him to return to his hometown of Chicago.

Daley’s future in the White House was cast into doubt late last year after reports that he had relinquished day-to-day operations to senior adviser Pete Rouse.

Daley never appeared comfortable in the job, drawing criticism during the White House’s fight with Congressional Republicans during the debt ceiling negotiations last summer. In one embarrassing rebuke, Obama requested to speak to a rare joint session of Congress in September only to be rejected by House Speaker John A. Boehner (R-Ohio), who invited him instead to come a day later. The White House claimed that Daley had secured Boehner’s agreement to the original date ahead of time, but the speaker’s office denied that an agreement was in place.

The choice of Lew puts a veteran staffer of the White House, Capitol Hill and State Department in a critical position at a difficult time for the president. Obama hopes he can work through tough budget and economic issues with Congress this year despite fierce opposition from Republicans in the GOP-led House. Having a strong team captain who can deal with lawmakers, staffers and business leaders is considered crucial to their strategy.

But aides say Obama had faith in Daley to lead that effort, and that he had not been discussing making any changes prior to last week. Daley’s letter took the president by surprise, said three officials familiar with the personnel discussions that followed. They requested anonymity to speak about the internal talks in advance of the public announcement.

In October, Daley told Chicago reporters that he was looking forward to returning to his hometown but that he would serve the president through the duration of the reelection campaign.

ew served as budget director under President Clinton, and as deputy director of the Department of State under Hillary Rodham Clinton before taking the budget job in the current administration.

His budget director is stepping in (even though they haven't sent a budsget to Congress in 2 years).

From 2006-2008, Jack Lew was chief operating officer of Citibank's alternative investments division. And it was his division that made billions of dollars betting "U.S. homeowners would not be able to make their mortgage payments," as the Huffington Post reported.

The piece also reported: “Lew made millions at Citi, including a bonus of nearly $950,000 in 2009 just a few months after the bank received billions of dollars in a taxpayer rescue, according to disclosure forms filed with the federal government. The bank is still partly owned by taxpayers.”