Federal Reserve vice chair Janet Yellen will be the new head of the world's most powerful central bank - the first woman to hold the position.
The 67-year-old was Barack Obama's choice and she earned cross-party support in the bitterly divided chamber.
"The American people will have a fierce champion who understands that the ultimate goal of economic and financial policymaking is to improve the lives, jobs and standard of living of American workers and their families," the President said in a statement.
"As one of our nation's most respected economists and a leading voice at the Fed for more than a decade - and vice chair for the past three years - Janet helped pull our economy out of recession and put us on the path of steady growth."
However, the 56-26 vote was still among the closest in the 100-year history of the institution.
"Americans should feel reassured that we will have her at the helm of the Fed as our nation continues to recover from the Great Recession," said Senate Banking Committee chairman Tim Johnson.
"Dr Yellen's leadership will also be critical as the Fed completes Wall Street reform rulemaking and continues to enhance the stability of our financial sector."
Dr Yellen was President Obama's choice Dr Yellen will replace Ben Bernanke who steps down on January 31 after eight years in the job.
She has built a strong reputation as an academic economist, and as a veteran policymaker at the Fed she is not expected to veer far from the central bank's existing policies.
She has a long-term interest in the impact of joblessness on the economy, and has helped keep Fed policy focused on bringing down the unemployment rate.
She has also been closely identified with the Fed's opening up of its policy thinking, with the central bank communicating what it sees in the economy and the expected direction of monetary policy far more openly than 10 years ago.
Her nomination was contentious even among some Democrats.
Joe Manchin of West Virginia, had been "troubled by the unchecked quantitative easing policies" of the Fed.
"In light of recent news that the Fed will begin to taper its easing by $10bn a month starting in January, I now feel comfortable supporting Vice-Chair Yellen's nomination," he said in a statement.
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