The 17-time Grand Slam champion and defending Cincinnati champion lost in the quarterfinals to rival Rafael Nadal in three sets (5-7, 6-4, 6-3) on Friday.
Federer won the first set but was unable to maintain momentum against the Spaniard who went on to beat Czech player Tomas Berdych in straight sets on Saturday, before winning the final against American John Isner on Sunday.
Isner beat world number one Novak Djokovic in a shock result in the quarterfinals, 6-7, 6-3. 5-7.
The Serb is expected to keep his top ranking but there will be a shakeup among the other top positions, with Nadal nipping at his toes at number two.
Federer, meanwhile, is expected to slide to number seven in the ATP rankings, behind Argentine Juan Martin Del Potro and Berdych.
“Credit to him for hanging on and getting back some tough shots,” Federer, a five-time winner of the Cincinnati Masters said of Nadal.
“I have some disappointment, I could have played better late in the second and early in the third,” he admitted.
“But my tactics were working most of the time, I did pretty well,” the 32-year-old Basel native said.
“I served well for most of the match, but when I didn’t he was able to step it up — that was the match right there.”
Federer, who has not won a major tournament all season and has been struggling recently to deal with a back injury, will be setting his sights on the US Open, set to start in New York on August 26th.