The US Senate on Monday confirmed Janet Yellen as the new chairman of the Federal Reserve by a vote of 56 to 26.
Yellen will replace Ben Bernanke, whose second term ends on January 31, and becomes the first woman to chair the US central bank.
"She is breaking an incredibly important glass ceiling," Terry O'Neill, president of the National Organization for Women, told Reuters.
Yellen, aged 67, will take over leadership of the Fed as it begins to reduce its unconventional $85 billion a month (£50 billion) bond-buying economic stimulus programme, often called "quantitative easing."
Yellen has supported the bond buying strategy by the Fed to keep US interest rates unusually low and help boost the American economy as it rebounded from the financial crisis.
In December, Bernanke said the Fed would reduce or "taper" the bond buying to $75 billion a month (£45 billion) due to job market improvements.
Some economists now expect the central bank to continue the "taper" by $10 billion every month until finishing the unconventional bond buying measure at the end of 2014.
Nonetheless, Bernanke has reassured traders and markets by indicating the Fed will keep rates very low until the US economy shows stronger signs of all-round recovery, a policy that has been supported by Yellen.
Yellen is from Brooklyn, New York and is a well respected academic, having taught at Harvard University, The London School of Economics and the University of California, Berkeley.
President Obama is now expected to nominate former Bank of Israel head Stanley Fischer to replace Yellen as vice-chair of the Fed.
Obama nominated Yellen as Fed chairman after his former economic adviser Lawrence Summers withdrew his name from consideration for the post following opposition from within the Democratic Party.