(Reuters) - The interest rate for the most popular U.S. home loan rose last week to an eight-month high of 7.09%, extending an upward trend that's squeezing would-be homebuyers already facing rising house prices and limited supply.

The average contract rate on a 30-year fixed-rate mortgage rose 10 basis points in the week ended Jan. 10, the Mortgage Bankers Association said on Wednesday.

It was the fifth straight weekly rise and puts the main home-loan rate nearly a full percentage point above where it was in September, when the Federal Reserve began cutting short-term borrowing costs.

The Fed's policy rate is now a full percentage point lower than it was then, but mortgage rates have gone in the opposite direction, tracking a surge in Treasury yields driven by worries about sticky inflation and rising budget deficits.

President-elect Donald Trump moves into the White House next week with an economic agenda that includes extending his 2017 tax cuts, estimated to add trillions of dollars in government debt. The U.S. budget deficit topped $1.8 trillion last year, the highest ever outside of the COVID era.

The Fed has signaled slower interest rate cuts this year, amid concern over stalling progress toward its 2% inflation goal, and uncertainty over how Trump policies like increased tariffs and immigration restrictions could impact the economy.

A fresh read on inflation is due early Wednesday, with economists expecting a Labor Department report to show the consumer price index rose 2.9% in December from a year earlier, compared with 2.7% in November.