He had been widely tipped as the top choice for over a week.
President Donald Trump interviewed five candidates for the role, including current chair Janet Yellen whose term finishes in February.
Despite a tradition of reappointing Fed chairs, President Trump has said he wanted to make his own "mark".
"I think Janet Yellen is excellent," Mr Trump told reporters during a meeting with his cabinet on Wednesday.
But asked if she was his pick, the president said: "I didn't say that."
Mr Powell, who has an estimated income of between $20m and $55m (£15m-£41m), is a lawyer by training and a former partner in the Carlyle Group - one of the world's biggest investment companies.
He was appointed to the Federal Reserve board in 2012 and has voted with the majority on issues such as interest rates.
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