The 17-time grand slam champion was defeated in the quarter-finals of the Western and Southern Open by old foe Rafael Nadal last week.
That meant Tomas Berdych of the Czech Republic and Argentina's Juan Martin del Potro, both of whom reached the last four in Cincinnati, moved above Federer.
It has been a forgettable year for the former world number one, who is enduring his worst season since before he won his first grand slam at Wimbledon a decade ago.
Indeed, his shock loss to the lightly-regarded Sergiy Stakhovsky at SW19 this year led many to believe Federer's days as a elite-level player were coming to an end.
He has struggled with injury and poor form since then, but his performance in a three-set defeat against Nadal may give the Swiss reason for optimism ahead of the US Open, which gets under way next week.