The decision comes as Washington, fresh off the year-end “fiscal cliff” negotiations, moves to bruising fights over the nation’s debt limit, sequestration cuts and a measure to continue funding the government.
Lew, a veteran of Washington budget fights, would replace outgoing Treasury Secretary Timothy Geithner, who has said he plans to leave the White House by the end of January.
The president reportedly had to convince Geithner, the former head of the New York Fed, to stay on in the position through the completion of Obama’s first term in office. Geithner initially wanted to leave after the debt-limit fight in the summer of 2011.
Lew would not bring the same financial bona fides to the job as Geithner, but a source familiar with the process said he has the deep knowledge of domestic and international economic issues that the job requires.
The source also noted that as White House chief of staff, Lew had a significant role in working with officials overseas during the European debt crisis.
As Treasury secretary, Lew would be the president's chief ally in what is lining up to be another round of tough negotiations with Republicans in Congress.
Lew could face a confirmation hearing in the Senate at a time when Treasury is using “extraordinary measures” to prevent the government from defaulting. A report from the Bipartisan Policy Center earlier this week predicted that Treasury could begin defaulting as soon as Feb. 15.
Many Republicans want to use the threat of default to force the White House to cut spending and trim entitlement benefits, but the president has said he will not negotiate over the country's borrowing limit.
The president has been busy in January reshuffling his Cabinet ahead of his second term. Earlier this week he tapped former Sen. Chuck Hagel (R-Neb.) to lead the Pentagon and counterterrorism adviser John Brennan to become the next director of the CIA.
The Hagel nomination, though, is expected to be a tough fight for the White House, with GOP lawmakers signaling opposition over their former colleague’s views on Middle East policy.
It's unclear whether Senate Republicans will fight the nomination of Lew, who has been confirmed for administration positions before.
Lew led the Office of Management and Budget under Obama and President Clinton, and was a deputy to Hillary Clinton at the State Department in the early part of Obama's first term.
— This story was first posted at 7:38 a.m. and has been updated