The British No 1 was beaten 7-5, 7-5, 6-4 on Centre Court to see his journey end at the semi-final stage at the All England Club.
Seven-time champion Federer was in imperious form in south west London and goes on to face World No 1 Novak Djokovic in a repeat of last year’s final.
For Murray, this was a far better performance than the thrashing he was dealt by Federer when the pair last met in London at the ATP World Tour Finals in London last November.
But this is the trophy Murray most craves and conceded the pain of losing out at SW19 is by far and away the deepest despair of the whole tennis calendar for him.
“Yeah, I think so because, you know, I feel like this is my best chance to win a slam,” Murray when asked if it hurt more to lose on home soil.
“When I played here, I feel like it's my best surface. I played consistently well here throughout my career. So it's tough in that aspect.
“Yeah, I mean, all losses hurt, obviously, especially in the major events. But, yeah, here is always tough.
“To be honest, I mean, he clearly deserved to win the match. He had more opportunities than me.
“Like I said, whether it was only his serving, if I could have returned a little bit better, you know, if it was a combination of him serving extremely well, me not maybe returning so well on the first serve, I don't know.
“It's frustrating obviously when you're out there 'cause I couldn't get a racquet on a lot of the returns. Even when I was, I wasn't, you know, getting enough depth on the returns to make it tough for him.
“But at times I played some very good tennis. I served well. Best I probably served in the tournament myself. So, yeah, just a tough one.”
Federer moves into his 10th Wimbledon final, in search of his eighth triumph, while Murray must now turn his attention to Britain's Davis Cup tie against France in London next week.