It was Thiem's second loss in the round robin stages of the eight man end of season championships at the 02 Arena in south-east London.
Despite the defeats, the 25-year-old Austrian is still in contention for a spot in the semi-finals. But his qualification will depend on a resounding victory over Kei Nishikori coupled with Kevin Anderson beating Federer in a convincing fashion on Thursday.
Federer lost his opening match on Sunday evening to Nishikori and Thiem suffered the response to that setback. The 37-year-old broke Thiem's serve to lead 2-1 in the opening set and Federer broke again in the seventh game when Thiem's volley slumped into the net.
Thiem lost his serve at the start of the second set and he faltered again when serving at 3-5 down.
"It feels good. I am very happy that I showed a reaction after the last match," Federer said. "Against Kei, instead of seeing things positively, I thought negatively. It was disappointing but it happens.
"I love playing in London and I had to remind myself what a privilege it is. I hope I showed it."