The 20-time grand slam champion was roundly beaten 6-3 6-4 by Russian qualifier Andrey Rublev in just 62 minutes.
Federer, who has won this event seven times before, was facing his 21-year-old opponent for the first time and the Swiss star said he'd been impressed by the strength of the Russian's game.
"He was super clean. Defense, offense, serving well," Federer said of his opponent after the match.
"Didn't give me anything. He was everywhere. It was tough for me, but an excellent match by him."
Federer eyes US Open
Despite the loss, Federer said he was pleased to have come through the Cincinnati Masters injury free and has already turned his attention to the US Open later this month.
The world No. 3 is looking to clinch his sixth title at Flushing Meadows, his first since 2008.
"I worked very hard coming into Cincinnati and in that little season we had since Wimbledon, so I can maybe also utilize a couple of days off," the 38-year-old added.
"I'm going to train, do exactly what I need to do for the US Open and that's it. It's fairly simple, but I've got to work hard."
'Most emotional win'
Meanwhile, Rublev will be looking to build on an impressive breakthrough year which has now seen him beat two top-five players -- the other being world No. 4 Dominic Thiem.
The world. No 70 was clearly emotional after beating Federer and can now look forward to a quarterfinal match up with fellow Russian Daniil Medvedev.
"It's the biggest and most emotional win," said Rublev, before turning his attention to praising Federer.
"I can't imagine every day how much pressure you have. I mean, to know that you're Roger and everybody is watching you and you need to prove it every day, and he's doing this, I don't know for how many years. I mean, this is something, I don't know, unreal."
Murray out of US Open
Meanwhile, three-time grand slam champion Andy Murray confirmed he won't be taking part at this year's US Open in the doubles as he continues his return from hip surgery.
The 32-year-old had previously ruled himself out of playing in the singles at Flushing Meadows but has now confirmed he will miss the competition altogether.
"I'm not going to play doubles at the US Open. My goal is to get back playing at the level that I want to on the singles court, and I've decided that I need to focus all my energies on that right now," Murray told BBC Sport.
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